NZ dollar jumps against yen after BoJ increases stimulus

File photo / NZ Herald

The New Zealand dollar jumped to a five-week high against the yen after the Japanese central bank unexpectedly expanded its monetary stimulus programme in an attempt to boost growth and inflation in the world's third-largest economy.

The kiwi touched 88.03 yen over the weekend, its highest since Sept. 25. The local currency was trading at 87.59 yen at 8am in Wellington, from 85.77 yen at 5pm on Friday. The New Zealand dollar was trading at 77.64 US cents from 77.80 cents at the New York close and 78.41 cents on Friday.

The yen plunged and the Nikkei share index jumped after the Bank of Japan announced on Friday it would increase its asset buying programme to 80 trillion yen a year, from a previous rate of 60-70 trillion yen, in an attempt to encourage more lending and boost spending.

Japan has battled with deflation, or falling prices, for more than 15 years which has led to stagnant economic growth. At a news conference following the BoJ's meeting, governor Haruhiko Kuroda said it was a "critical moment for Japan to emerge from deflation".

Further weakening the yen, Japan's government pension fund announced it would increase its holdings of foreign and domestic shares.

"The dramatic new increase in quantitative easing was utterly unexpected by the market," Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York, said in a note. "Taken altogether, this was a massive infusion of fresh liquidity into the Japanese capital markets and it highlights the BoJ determination to wipe out deflationary forces."

Today, Japanese banks will be closed in observance of Culture Day.

The New Zealand dollar slipped to 88.74 Australian cents from 88.83 cents on Friday. In Australia today, reports are scheduled for release on manufacturing, inflation, building approvals and commodity prices.

Traders will also be eyeing data in China today with the non-manufacturing Purchasing Managers Index and the HSBC final manufacturing PMI scheduled for release this afternoon. A report at the weekend showed China's PMI fell to a lower-than-expected 50.8 in October, from 51.1 the previous month and 51.2 expected by economists in a Bloomberg survey. A reading above 50 indicates growth.

China's economy expanded at a 7.3 percent annual pace in the third quarter, lagging the country's 7.5 percent target. China is New Zealand's largest trading partner and the world's second-largest economy.

The kiwi weakened to 62.06 euro cents from 62.21 cents on Friday. An initial report of Eurozone inflation showed consumer prices edged up 0.4 percent in October, from 0.3 percent in September, the 13th month Eurozone inflation of below 1 percent.

The local currency slipped to 48.58 British pence from 49.02 pence on Friday. The trade-weighted index weakened to 76.48 from 76.56 on Friday.