TOKYO – The yen tumbled to a 20-month low in Asian trading Wednesday amid expectations that incoming Japanese premier Shinzo Abe would push for aggressive monetary easing to boost the nation’s limp economy.
The greenback bought 85.17 yen in Tokyo midday trade after topping 85.00 yen for the first time since April 2011.
The US unit briefly surged to 85.35 yen, well above a postwar low of 75.32 yen hit late last year as markets turned to the yen as a safe-haven amid turmoil in debt-hit Europe and a slowing global economy.
The yen’s weakness also stemmed from minutes of the Bank of Japan’s November policy meeting, released Wednesday, which hinted at further easing measures, dealers said. Easing tends to weigh on a national currency.
The euro, meanwhile, was also stronger against the Japanese currency at 112.27 yen from 111.77 yen on Tuesday while it was flat at $1.3181.
The sagging yen gave Tokyo’s stock market a boost as it helps Japanese exporters by making their products more competitive overseas and raises the value of firms’ repatriated foreign income.
The Japanese currency has been on the decline after Abe, whose Liberal Democratic Party won a landslide national election last week, steps up pressure on the central bank to take bold easing steps.
The dollar is likely to trade in a 84.50-85.30 range, with holiday-season trading expected to be relatively subdued, said Osao Iizuka, head of forex trading at Sumitomo Mitsui Trust Bank.
“The bottom line is that the dollar will likely rise further next year amid expectations that the Fed will exit loose monetary policy earlier than the BoJ,’ he told Dow Jones Newswires.
Abe is to be named prime minister later Wednesday, after he swept to power on a hawkish platform of getting tough on diplomacy while fixing the economy with active fiscal spending and monetary easing.
On Sunday, he threatened to change a law guaranteeing the central bank’s independence if it did not agree to set a two-percent inflation target, in a bid to drag Japan out of the deflation that has haunted its economy for years.
Last week, Japan’s central bank launched its third major round of easing since September, after its counterparts in the US and Europe also unleashed huge measures. The move was widely seen as a bow to Abe’s pressure campaign.
Abe, who previously served as prime minister from 2006 to 2007, is expected to name Taro Aso, another former prime minister in Japan’s revolving-door political system, as both his deputy and finance minister, reports said.
As premier in 2008-2009, Aso launched a series of economic stimulus packages worth hundreds of billions of dollars.
The new government in Tokyo has announced a spending package worth about $118 billion to help inject some life into the world’s third-largest economy.
But the longer-term impact on the yen could be a loss of faith in the currency in the midst of heavy political pressure to stoke inflation, said Mizuho Securities chief market economist Yasunari Ueno.
“I wonder if this recent yen weakening is gradually changing in nature to a ‘bad yen weakness’ due to the damage done to trust in the yen on the back of a mere correction from excessive yen strength,” he said.