The yen tumbled, sliding to the weakest in more than 3 1/2 years against the euro, as the Federal Reserve’s unexpected hold in monetary policy sent stocks higher and damped demand for haven currencies.
The yen slid against all 16 of its major peers after a Bank of Japan policy maker said pressure may mount to expand stimulus. The dollar fell to a seven-month low against the euro after Fed policy makers maintained monthly bond purchases at $85 billion. New Zealand’s dollar rose after data showed the economy expanded. Malaysia’s ringgit surged the most since 1998 and India’s rupee advanced. The pound weakened after U.K. retail sales unexpectedly fell.
“With risk sentiment likely to continue to be supported in the very near term by this more dovish Fed policy outlook, that should keep low-yielding currencies like the yen on the back foot along with the dollar,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Yen weakness is likely to be more concentrated against the most high-beta, high-risk currencies, particularly those of current-account deficit countries and emerging markets.”
The yen dropped 1.3 percent to 134.09 per euro at 6:27 a.m. New York time after touching 134.22, the weakest since Jan. 11, 2010. The Japanese currency slid 1 percent to 98.90 per dollar after appreciating to 97.76 yesterday, the strongest level since Aug. 29. The dollar slipped 0.3 percent to $1.3560 per euro after reaching $1.3569, the weakest since Feb. 7.
The MSCI Asia Pacific Index of shares advanced 2.2 percent, while the Stoxx Europe 600 Index gained 0.9 percent. Futures (SPA) contracts on the Standard & Poor’s 500 Index rose 0.5 percent.
Fed policy makers said they want more proof of an economic recovery before curbing their $85 billion-a-month asset-buying program, known as quantitative easing, surprising analysts predicting a $5 billion cut to Treasury purchases.
Fed Chairman Ben S. Bernanke said there is no fixed schedule for tapering, which could still start this year. A statement said interest rates will stay near zero while unemployment exceeds 6.5 percent and inflation tops 2.5 percent.
“The Fed statement was noticeably dovish,” said Yuki Sakasai, a foreign-exchange strategist in New York at Barclays Plc. “There is expectation that there may be more QE.”
The dollar declined 2.1 percent in the past week, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen lost 1.4 percent and the euro was little changed.
Emerging-market currencies surged after the Fed maintained stimulus that’s helped drive up asset prices across the globe. The Malaysian ringgit climbed 2.3 percent to 3.1595, the biggest intraday advance since September 1998. The baht jumped 2.1 percent to 30.985 per dollar. India’s rupee surged 2.4 percent to 61.855 versus the U.S. currency.
“You’ve got to go with the flow -- you’ve got to buy risk currencies, risk assets,” Mitul Kotecha, the global head of foreign-exchange strategy at Credit Agricole SA (ACA) in Hong Kong, said in a Bloomberg Television interview. “Perhaps we’ve seen a delay in the recovery in the dollar because of the Fed delaying tapering, but the reality is that the Fed will taper.”
The Fed’s surprise decision threatens one of the surest bets in currency markets this year. Traders borrowing funds in yen and using the proceeds to buy dollars earned an annualized 21 percent this year through Sept. 17, a record based on data compiled by Bloomberg back to 1990. That carry trade was predicated on rising market interest rates in the U.S. as the Fed bought fewer and fewer bonds.
“The yen is being pushed into an area by external factors and that is probably going to weigh on the economy,” said Andrew Salter, a Sydney-based currency strategist at Australia & New Zealand Banking Group Ltd. (ANZ) “The broad question for Japan now is, does this implied strength in the yen bring the BOJ any closer to further monetary stimulus?”
Takahide Kiuchi, the BOJ board member most openly critical of its monetary policy, said the central bank may come under pressure to expand easing. “I can’t deny the possibility that the Bank of Japan will be influenced by external factors such as market expectations and will be forced to respond in such a way,” Kiuchi said.
New Zealand’s dollar rose for a fourth day as a government report showed gross domestic product grew 2.5 percent in the three months through June 30 from a year earlier, beating the median forecast of 2.3 percent in a Bloomberg survey.
The kiwi climbed 0.6 percent to 84.22 U.S. cents, after reaching 84.36, the highest since May 9.
Sterling weakened from near an eight-month high against the dollar after data showed U.K. retail sales including fuel declined 0.9 percent from July. The median forecast of 20 economists in a Bloomberg survey was for a 0.4 percent gain.
The pound declined 0.4 percent to $1.6075 after climbing to $1.6163 yesterday, the most since Jan. 11. It fell 0.7 percent to 84.34 pence per euro.
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