The dollar sunk Tuesday to its weakest level against the yen in nearly two weeks amid reports that Japanese stimulus efforts might fall short of investors’ expectations.
The greenback tumbled 1.3% to ¥104.37 in recent trade, its weakest level since July 14, compared with ¥105.81 late Monday in New York.
A Nikkei report published over the weekend said a fiscal stimulus package planned by the government would be much smaller than expected. Taro Aso, Japan’s finance minister, played down the report, saying the government had not yet decided on the size of the package.
Aso’s comments undermined expectations for a sizable expansion of the Bank of Japan’s easing efforts on Friday following the close of its two-day policy meeting, according to a team of currency strategists at Scotiabank. The BOJ might want to gauge the size of the government’s fiscal stimulus before deciding whether supplemental measures are needed, the team said.
The greenback plunged to its weakest level against the yen in more than two years late last month after the U.K. voted to leave the European Union, sending investors scrambling into safety plays like the yen and gold.
But it has risen off its lows against the yen this month after Prime Minister Shinzo Abe’s ruling coalition won a decisive electoral victory, increasing the likelihood of more monetary and fiscal stimulus measures.
“I’d be surprised if they hesitate,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange. “Because that would see the yen rocket higher and that’s something policy makers in Japan want to avoid at all costs.”
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