Yen tumbles on renewed rate cut talk

Speculation that the Bank of Japan could effectively start paying banks to borrow its cash caused the yen to tumble on Friday and gave government bonds a lift after a second bruising week in a row.

Disappointing earnings reports from some of the world’s biggest tech companies and fresh emission-test troubles for Europe’s auto makers meant a low-key day at the end of a positive week for the world’s main stock markets.

Wall Street, which is back near record highs, was set to reopen virtually flat. Traders were looking over General Electric and Honeywell earnings and waiting on manufacturing data, after lacklustre numbers from Google’s parent wiped $32 billion off its value on Thursday .

Euro zone business data earlier had showed an unexpected slowdown in April. Meanwhile, the bloc’s finance chiefs met in Amsterdam to discuss whether Greece was making the necessary progress. The head of the International Monetary Fund said it wasn’t.

A Bloomberg report that the central bank might go further with negative interest rates caused the yen to fall more than 1 per cent, to 110.34 yen per dollar and 124.93 to the euro.

The Bank of Japan, which meets next week, has two lending facilities. One offers banks zero-interest funding for loans to companies in high-growth industries and one provides zero-interest long-term funds to banks that increase lending more generally.

The bank would consider applying negative rates on both facilities, Bloomberg reported – paying commercial banks to accept funding.

“That puts a different light on the BOJ meeting and suggests they might be more creative than the markets had given them credit for,” said Rabobank FX strategist Jane Foley. “Clearly we have seen the yen suffer on the back of that.”

The Federal Reserve also meets next week. Healthy markets and reassuring data over the past month have left many investors wondering whether they might have been too quick in pricing out an increase in US rates this year.

– (Reuters)

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