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Yen, euro sag amid surge in stimulus expectations

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Yen bear Nomura Holdings Inc says the Bank of Japan risks "irreversible damage" to the economic recovery if it fails to check the currency's world-beating rally.

[NEW YORK] The Japanese yen and euro fell on Friday amid increasing expectations that leading central banks will take steps to offset further deflationary pressures.

The euro fell to US$1.0797 and the yen slipped to 118.76 per US dollar and 128.23 per euro.

The moves came a day after the European Central Bank hinted strongly that it could add new stimulus in March, and ahead of meetings by the Federal Reserve and Bank of Japan next week in which deflation and global market turbulence will be key issues on the table.

Pressing down on the yen while giving a strong boost to Japanese stocks was a report in the Nikkei business daily on Friday, saying that the BoJ is considering whether to add stimulus to counter the risks of slumping oil prices and a stronger yen.

"The Fed and BoJ meetings will probably be positive ingredients for sentiment," Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank, told AFP.

However, she doubted the BoJ would add to its stimulus at this meeting. Bank of Japan chief Haruhiko Kuroda "isn't likely to announce fresh monetary easing or other bazooka-like steps."

After December's historic US rate hike, the first in more than nine years, the Fed is also not likely to take action.

But it could, in its policy statement, show how cautious it will be about future hikes given the low-inflation environment.

"It will be difficult for Federal Reserve officials to keep a brave face," said Kathy Lien of BK Asset Management.

"We would be surprised if the (Fed policy) statement did not contain a tinge of concern." With the ECB and Bank of England both worried about inflation and market swings, she added: "It is hard to believe that US policymakers haven't been unnerved by the volatility in equities and commodities."