By Hiroyuki Kachi
The dollar jumped against the yen in Asia trade Friday, hitting
its highest level in nearly seven years after the Bank of Japan
unexpectedly moved to ease its monetary grip.
The dollar (USDJPY) soared to Yen111.17 from Yen109.22 late
Thursday in New York, touching its highest since January 2008.
Meanwhile, the euro (EURJPY) climbed to Yen139.79, crossing the
Yen139 line for the first time in one month, from Yen137.72.
"We are getting a bunch of orders" including those from hedge
funds, said a senior dealer at a Japanese bank. "Everyone is
jumping around with the surprise," the dealer said.
The BOJ on Friday unexpectedly announced additional stimulus
measures, underscoring how Prime Minister Shinzo Abe's economic
revival plan has gotten off track since a national sales tax
increase in April this year damped consumer spending.
Specifically, the BOJ said it would expand its annual asset
purchases -- its main tool to spur higher inflation--to Yen80
trillion from the previous target range of Yen60 trillion to Yen70
trillion. The central bank aims to achieve the new target mostly by
buying more Japanese government bonds, cementing its status as the
single largest investor in JGBs.
The news helped push the Nikkei Stock Index 5.4% higher.
Earlier in the session, the dollar had already strengthened on
hopes for a more aggressive investment approach by Japan's mammoth
Government Pension Investment Fund.
Investors are now keen to monitor details of the GPIF's new
portfolio expected to be released later today. Japan's welfare
minister is likely to approve a new portfolio, under which the
fund's 60% target allocation to low-yield Japanese bonds will be
lowered by roughly half but instead the fund sharply will increase
weightings to Japanese stocks and foreign assets, according to
people familiar with the matter.
As the GPIF does not hedge foreign asset holdings against
currency risk, its capital outflows lifted the dollar against the
yen.
Assuming a shift in the GPIF's assets towards more foreign
assets -- a combined 40% in foreign bonds and stocks as reported in
a local media compared with the 30% previously expected -- that
could translate into potential yen selling pressure worth Yen10
trillion, said Nomura Securities chief FX strategist Yunosuke Ikeda
in a morning note.
The GPIF headline "reinforces the possibility that the trend of
the yen weakness and higher stocks will continue
uninterrupted."
The WSJ Dollar Index , a measure of the dollar against a basket
of major currencies, was up 0.48% at 78.28. The euro (EURUSD) fell
to $1.2575 from $1.2611 late Thursday.
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