Yen’s Wild Ride Comes Full Circle as BOJ Stimulus Disappoints

(Bloomberg) -- A wild month for the yen is ending right where it started.

The currency surged 2.4 percent versus the dollar Friday, leaving it little changed for the month after the Bank of Japan refrained from expanding government-bond purchases that have been the mainstay of its efforts to stoke the economy.

Friday’s rally caps a tumultuous July. The yen surged as much as 3.1 percent to start the month as traders sought a haven after the U.K.’s Brexit vote. It then plunged almost 7 percent amid rising expectations for currency-debasing stimulus. Friday’s news brought it back close to square one.

“The BOJ delivered the bare minimum in terms of what investors have been expecting,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London.

For details on the BOJ’s decisions, click here

The yen has whipsawed traders in recent weeks amid varying reports on the BOJ’s intentions and the potential for coordinated action with the government to boost flagging growth and inflation. Investors now must quickly shift to assessing the efficacy of a 28 trillion yen ($273 billion) fiscal stimulus package announced this week by Prime Minister Shinzo Abe that will bear the main burden for spurring expectations for growth and inflation.

The yen rallied to 102.71 per dollar at 10:43 a.m. in New York, headed for its biggest gain since the June 24 aftermath of Britain’s vote to exit the European Union. It touched 102.54 earlier, the strongest level since July 12. Japanese benchmark bonds fell the most in three years.

BOJ Governor Haruhiko Kuroda and his board increased purchases of exchange-traded funds to six trillion yen. They left bond buying at 80 trillion yen a year and maintained the minus 0.1 percent rate on some deposits. Thirty-two of 41 economists in a Bloomberg survey had predicted an expansion of stimulus at the meeting.

Japan’s currency climbed to a 2 1/2-year high of 99.02 per dollar on June 24, and in less than a month retreated to as weak as 107.49 as expectations for monetary and fiscal stimulus built up.

“It makes you wonder how effective fiscal policy is going to be if the BOJ refuses to play ball,” said Cliff Tan, a currency strategist in Hong Kong at Bank of Tokyo-Mitsubishi UFJ.

--With assistance from Lukanyo Mnyanda and Chikako Mogi To contact the reporters on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net, Rebecca Spalding in New York at rspalding@bloomberg.net. To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Mark Tannenbaum

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