Yen set for longest losing streak since May amid divergence bets

[SYDNEY] The yen headed for a third weekly decline against the US dollar amid speculation the Federal Reserve will tighten this year, rekindling divergence with Japan's central bank.

Japan's currency was poised for its longest losing streak since May, while a gauge of the US dollar was poised for back-to-back weekly gains. Bank of Japan Governor Haruhiko Kuroda, in an Oct 8 interview with Bloomberg Television, left no doubt that the central bank has no intention of reducing stimulus any time soon.

The odds of a interest-rate increase by the Fed in 2016 have risen since the end of September, pushing up Treasury yields to a four-month high this week.

"It's more of a dollar-strengthening move," said Chris Weston, chief market strategist at IG Ltd in Melbourne. "For the yen to weaken further, the US yield curve needs to steepen further. That will prompt some capital outflows out of Japan to US Treasuries."

The Japanese currency slipped 0.1 per cent to 103.79 against the greenback at 9:25am in Tokyo. It has slipped 0.8 per cent this week, taking losses since Sept. 23 to 2.6 per cent. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, gained 0.1 per cent and has risen 0.6 per cent for the week.

The pound dropped 0.2 per cent to US$1.2226, heading for a fifth weekly decline in six weeks. The currency has fallen on concern the British government will pursue a so-called "hard Brexit" strategy that will see the UK give up its membership of the European Union's single market to secure greater control of immigration and lawmaking.

BLOOMBERG