A US dollar could soon be worth the same as a Japanese 100-yen coin for the first time since April 2009, as investors price in the Bank of Japan’s aggressive monetary expansion.
The yen plunged to fresh lows against major currencies early in Asia on Monday, coming within less than two yen of the 100 mark against the dollar, as the Japanese central bank took its first steps to whip deflation under its bold new scheme.
Once that milestone is breached, strategists say profit-taking could temper the dollar’s rally, though appetite of Japanese life insurers for higher-yielding foreign assets is likely to maintain downward pressure on the yen for most of the year.
The BOJ conducted its debut bond-buying operation on Monday, purchasing 1.2 trillion yen ($12.35 billion) of longer-dated debt, as the first step of its stimulus plan unveiled on April 4 to inject about $1.4 trillion into the economy in under two years.
The fact that the central bank wasted no time in backing up its vows with action vanquished any remaining scepticism about its resolve to beat almost two decades of deflation, giving yen bears more reason to smile.
The dollar surged as high as 98.85 on Monday, gaining more than a full yen from Friday’s late North American levels to its highest since June 2009.
“This has really shaken up many people’s attitudes toward the BOJ and the new government,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
But a clear sign of outbound investments from big Japanese institutional investors is crucial for the weak yen to take root.
Investment flows out of Japan and into higher-yielding, high-quality assets have already begun, with French, Dutch, Austrian and Belgian bond yields all falling to record lows on Friday in the wake of the BOJ’s stimulus announcement.