TOKYO: The yen recorded biggest losses on Friday with dropping to its lowest level in 7 years against the dollar after the Bank of Japan shocked markets by unexpectedly easing policy further.
In a pre-emptive move to combat risks of deflation, the BoJ launched another round of quantitative easing. It raised its monetary base target to an annual increase of 80 trillion yen ($724.5 billion) from 60-70 trillion yen and tripled its purchase of risk assets such as exchange traded funds (ETFs) and real estate investment trusts (REITs).
While some in the market had expected some easing, most had thought any additional easing was months away as Governor Haruhiko Kuroda had voiced optimism over the Japanese economic outlook even after soft data.
As a result, the dollar surged past its Oct. 1 high of 110.09 yen, rising as far as 111.53 yen, its highest level since January 2008. It has gained 2 percent on the day, on course for its biggest gain since April last year.
“It is a bit of a Halloween shocker for the markets,” said Jeremy Stretch, head of currency strategy at CIBC World Markets. “Along with the reallocation by the pension fund, it is a double whammy for the yen.”
A Japanese government panel overseeing the Government Pension Investment Fund (GPIF) approved plans for the fund to raise its holding of foreign stocks to 25 percent of its portfolio from 12 percent, sources said on Friday.
Gareth Berry, a currency analyst with UBS, said both these measures are likely to propel dollar/yen higher, taking the pair closer to their three-month forecast of 115 yen.
While the euro jumped to a one-month high against the yen, it fell against the dollar toward recent two-year lows. It was last trading 0.4 percent lower at $1.2565, with bears targeting the Oct. 3 low of $1.2500.
The dollar index climbed as far as 86.736 – a high last seen on Oct. 6, approaching a four-year high – as the greenback also benefited from upbeat U.S. growth figures published on Thursday.
