Dollar hits 6-week high vs. yen on hopes for Japanese stimulus 

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The yen weakened against its rival currencies, hitting its six-week low against the dollar, during Asian trade on Thurdsay, on mounting hopes for strong policy steps Tokyo will likely put together later this month.

The U.S. dollar USDJPY, +0.22%  higher at ¥106.94, compared with ¥106.89 late Wednesday in New York. The greenback briefly hit ¥107.49 in the mid-morning trade, its highest since June 7, before stabilizing just above the ¥107-line midday.

The euro EURJPY, +0.48%  higher at ¥118.01 from ¥117.76, while the pound GBPJPY, +0.45%  to ¥141.48 from ¥141.21.

Media reports Thursday said the Japanese government is arranging to compile an economic stimulus worth ¥20 trillion ($187 billion) to vault Japan out of more than a decade of deflation. The stimulus is higher than the originally envisaged ¥10 trillion worth package, due to inclusion of infrastructure-related outlays and the use of low-interest government loans, the reports said.

The reports caused a positive surprise, with investors scrambling to sell the Japanese currency from earlier in the session. “Expectations (for Tokyo’s strong policy steps) have been maximized,” said Marito Ueda, director at FX Prime byGMO.

Investors’ expectations have already remained high since Prime Minister Shinzo Abe recently pledged to compile comprehensive and bold steps. Abe’s meeting earlier month with former Federal Reserve Chairman Ben Bernanke, an advocate of monetization, has fueled speculation that he might be considering the use of ‘helicopter money,’ where a central bank directly underwrites government borrowing.

“I think the yen is entering a dangerous level,” as investors look poised to buy back the yen if the Bank of Japan disappoints investors when its policy setters meet July 28-29,” said Ueda.

Bucking the weaker yen trend, the New Zealand dollar NZDJPY, -0.2530%  to ¥74.68 from ¥75.10. Against the dollar, the New Zealand dollar NZDUSD, -0.4413%  to $0.6985 from $0.7025.

Earlier in the Asia session, the Reserve Bank of New Zealand signaled an interest-rate cut next month, saying inflation remains stubbornly low and the currency is too strong.

“At this stage it seems likely that further policy easing will be required to ensure that future average inflation settles near the middle of the target range,” RBNZ Governor Graeme Wheeler said in a statement.

Ahead of the European Central Bank’s policy meeting later Thursday, the euro EURUSD, +0.1725%  at $1.1033 from $1.1017.

The WSJ Dollar Index BUXX, -0.11% a measure of the dollar against a basket of major currencies, was up 0.02% at 88.01.

Source: MarketWatch

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