Yen drops with kiwi as stimulus hopes rise, Turkey turmoil fades

[SYDNEY] The yen dropped as much as 1.1 per cent and Turkey's lira gained Monday as concerns eased following a failed coup attempt in the Eurasian country.

The Japanese currency weakened against all of its 16 major peers, extending a 4.1 per cent tumble versus the dollar last week. The lira jumped, paring its declines triggered by the thwarted coup attempt that broke out in the final hours of last week.

The uprising was quashed with President Recep Tayyip Erdogan back in control. The New Zealand dollar fell after quarterly inflation was slower than economists had forecast.

The yen's decline was driven as the "geopolitical uncertainty eased after the Turkish government quashed the military coup," said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney.

"Importantly, speculation of coordinated fiscal and monetary policy easing in Japan by the end of this month can keep the currency under downside pressure in the near term."

Japan's currency dropped 0.5 per cent to 105.44 per dollar at 6:45 am in London on Monday. The lira jumped 2 per cent to 2.9557 per dollar, after sliding 4.6 per cent on Friday. Japanese financial markets are closed for a public holiday on Monday.

Japan's Chief Cabinet Secretary Yoshihide Suga in an interview ruled out the issuance of deficit bonds to fund an economic stimulus package planned for the autumn, hinting at the use of construction debt for longer-term investments. Speculation about the stimulus plan and so-called helicopter money led the yen to weaken last week.

In his first speech after winning an upper house election on July 10, Prime Minister Shinzo Abe outlined plans for a "bold" stimulus package. He said it would include funds for regional infrastructure, such as bringing forward the construction of maglev and other high-speed train lines and improving facilities at ports for tourist cruise ships.

Mr Suga echoed comments made by former Federal Reserve chairman Ben S Bernanke during a visit to Tokyo last week, in saying that the Bank of Japan still has options for further easing its already unprecedented monetary stimulus.

The kiwi fell 0.3 per cent to 70.97 US cents as the weaker-than-expected inflation data fueled expectations for a central bank rate cut in August. New Zealand's consumers price index rose 0.4 per cent in the second quarter from a year earlier compared with economists' estimate of a 0.5 per cent gain.

"Softer New Zealand inflation will raise odds for another RBNZ rate cut," and weigh on the currency Commonwealth Bank's Mr Haddad said.

Swaps traders are pricing in a 65 per cent chance of a rate cut by New Zealand's central bank Aug 11, compared with 55 per cent at the start of the month.

BLOOMBERG