Yen, Kiwi Tumble on Stimulus Expectations

The yen and Kiwi fell to their lowest levels in almost two months as speculation the two countries planned to increase economic stimulus gain momentum.

According to the Prime Minister of Japan Shinzo Abe, the Bank of Japan is looking to extend its stimulus package by 20 trillion yen ($187 billion) to boost weak consumer spending and pressure costs amid low shipment orders.

The Reserve Bank of New Zealand also stated that further monetary action may be needed to lift low inflation and modulate surging foreign exchange, increasing the odds of interest-rate cut next month. While Japan’s central bank will hold a two-day policy meeting from July 29 to July 30.

“The yen should continue to ratchet lower against the dollar into next Friday’s Bank of Japan meeting,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “As for the kiwi, an August rate cut is effectively a done deal. It should underperform on crosses near term.”

In its economic outlook report, “the RBNZ partly blamed its high exchange rate for holding down tradable goods inflation, hence, making it difficult to meet the inflation target of 1 percent to 3 percent.” The country’s inflation increased 0.4 percent in the second quarter of the year, but lower than 0.5 percent forecast by analysts.

Traders are currently pricing in about 90 percent probability of an August rate reduction compared with yesterday’s 75 percent.

The Kiwi dropped 0.8 percent against the US dollar to 69.69 U.S cents, after previously reaching 69.54, its lowest since June 8.

While the yen fell as much as 0.5 percent to 107.45 per dollar, before retreating to 107.15 as of 8:14 a.m. in Tokyo on Thursday.