The yen saw its biggest annual drop against the dollar since 1979 amid speculation the Bank of Japan will maintain stimulus to support Prime Minister Shinzo Abe’s economic strategy.
The yen fell 17 percent to the dollar in 2013 and 16 percent against a basket of nine other developed-nation currencies tracked by Bloomberg indexes, the biggest slide within the gauge. Hedge funds and other large speculators increased bets on a drop in the yen against the dollar to the most since July 2007. The euro saw an annual gain.
“Dollar-yen has probably been one of the most popular leverage trades throughout the year,” said Robert Rennie, the Sydney-based global head of currency and commodity strategy at Westpac Banking Corp. “The BOJ’s intention to almost double the size of its balance sheet and more than double its monetary base target over a two-year period was heavily sponsored by the hedge fund community.”
The Bank of Japan maintained its pledge to expand Japan’s monetary base by an annual $667 billion. In April, policy makers doubled monthly bond purchases to end 15 years of deflation by spurring consumer-price gains toward a 2 percent annual target.
The yen will probably be little changed at 104 to 105 per dollar in the first half of 2014, economists surveyed by Bloomberg forecast. Abe plans to raise Japan’s sales tax on April 1, the first increase since 1997.