NZ dollar soars vs. yen after BOJ opens stimulus floodgates

Friday 5th April 2013

The New Zealand dollar soared to its highest in almost five years against the yen after the Bank of Japan announced a larger-than-expected programme of monetary stimulus aimed at restoring inflation back to 2 percent and weakening its currency.

The kiwi jumped to 80.93 yen, and earlier traded as high as 81.12 yen, the highest since July 2008, from 78.06 yen at 5pm in Wellington yesterday, which was before the BOJ statement. The local dollar gained to 84.16 US cents from 84.08 cents.

Bank of Japan Governor Haruhiko Kuroda began his term with a larger-than-expected boost to kick-start the Asian nation's economy including buying 7 trillion yen (US$73 billion) of bonds a month as he attempts to end that nation's deflation. Reaction to the programme was heightened because Prime Minister Shinzo Abe had said this week he doubted the inflation target was achievable while Kuroda faced a BOJ board stacked with old appointees.

"This is massive easing, massive pumping of money into the system," said Stuart Ive, senior trader at HiFX.

Kuroda's statement was followed by interest rate decisions by the European Central Bank and the Bank of England. The ECB noted a slowing down of the region's economy and hinted at the possibility of a rate cut and the use of non-standard measures to stimulate growth.

"Some may wonder if this is the start of a currency war," Ive said. "Where does this leave the kiwi? As a bit of a ping pong ball."

Ive said the kiwi may trade in a range of 83.70 US cents to 84.60 cents ahead of US non-farm payrolls on Friday in the US. Figures this week showed private employment in the US was weaker than expected and weekly jobs data and PMI survey also disappointed.

Should non-farm payrolls miss estimates it would stoke speculation the Federal Reserve won't cut back on its stimulus programme any time soon, which makes the kiwi dollar look more attractive, Ive said.

The trade-weighted index climbed to 77.45 from 77.05. The kiwi fell to 65.08 euro cents from 65.43 cents and fell to 55.26 British pence from 55.56 pence. It rose to 80.68 Australian cents from 80.27 cents.

BusinessDesk.co.nz

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