Japanese Prime Minister Shinzo Abe’s sales tax deliberations are sending the world’s second-most- traded currency pair into a spin.
The yen yesterday tumbled to a seven-year low and then retraced the losses, only to weaken again as traders tried to decode the latest signals from Japanese politicians over a potential delay in raising the levy, while the US dollar rose against all 16 of its major peers in Asia trading.
“The US dollar is broadly stronger, and the dollar-yen is probably leading that,” Westpac Banking Corp currency strategist Sean Callow said. “I don’t think anyone has really changed their overall view that most likely the sales-tax hike will be delayed.”
The yen had slid 0.4 percent to ¥116.27 per US dollar as of 8:16am yesterday London time. It earlier touched ¥116.38, the weakest level since October 2007. It depreciated 0.2 percent to ¥144.77 per euro after sliding 0.6 percent on Thursday.
The yen headed for a fourth week of losses in which it has slumped more than 8 percent against the US dollar, the steepest decline among major currencies, ahead of Monday’s release of Japan’s July-to-September GDP data.
After the previous three months saw a contraction, another negative reading would put the Japanese economy in technical recession. Tokyo has said the growth figures would be key to its decision on whether or not to usher in the next tax hike.
“All eyes are on Monday’s third-quarter gross domestic product data, which will be used to justify everything that’s being reported in the press — from the imminent dissolution of the lower house to the putting off of next year’s sales tax hike,” Allianz Global Investors chief investment officer Kazuyuki Terao told Dow Jones Newswires.
In other trading, the US dollar rose to 1,100.78 South Korean won from 1,097.21 won on Thursday, to 32.86 Thai baht from 32.82 baht, and to 44.94 Philippine pesos from 44.87 pesos.
The New Taiwan dollar fell 0.1 percent to NT$30.77 against the US dollar. At one point, the NT dollar dropped to NT$30.78, the weakest level in almost four years.
“The central bank will keep the currency stable, with a slight depreciation bias,” Union Bank of Taiwan (聯邦銀行) currency trader Tarsicio Tong (湯健揚) said. “The Taiwan dollar might be affected by the Asian currency weakness especially in the yen and the won.”
The greenback also strengthened 0.4 percent to 12,213 Indonesian rupiah and rose 0.1 percent to 61.67 Indian rupees. The Australian dollar dropped 0.4 percent to US$0.87 and New Zealand’s currency fell 0.3 percent to US$0.79.
Abe plans to hold a news conference next week to announce a delay in the sales-tax increase, a report in the Mainichi newspaper said, without saying who provided the information.
Abe is set to also explain the reasons for his decision to dissolve parliament at the news conference, according to the report.
Japanese Minister of Finance Taro Aso yesterday said an appropriate decision would be made on raising the nation’s sales tax, taking into account economic conditions.
Abe is likely to clarify any new time frame for raising the sales tax should he decide to postpone a planned increase, Japanese Minister of State for Economic and Fiscal Policy Akira Amari said in Tokyo.
“The market likes the idea of a snap election and a delay in the sales tax hike, and the yen is being sold against the [US] dollar,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “I expect the yen to keep edging toward 120 per [US] dollar.”
Additional reporting by AFP
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