Kiwi gains against yen as Bank of Japan tipped to increase stimulus

The New Zealand dollar advanced against the yen in volatile trading on speculation the Bank of Japan may announce further stimulus measures today, prompting Japanese investors to seek higher returns in markets such as New Zealand.

Since yesterday, the kiwi has traded between 76.15 yen and 78.40 yen. It recently rose to 77.95 yen from 77.04 yen at 5pm in Wellington yesterday.

Japan's central bank will emerge from a two-day meeting today and is expected to announce further stimulus measures to boost the world's third-largest economy.

It could buy more bonds, lower interest rates on some lending or buy equities, which would boost the Nikkei 225 Index and weaken the yen.

"The Bank of Japan is going to be the main event of the day," says Imre Speizer, senior currency strategist at Westpac Banking Corp. "If they promote policies which are stimulative, that would debase the yen."

Further stimulus by Japan's central bank would spur investors there to pull their money out of defensive government bonds and put it into higher yielding Japanese equities or overseas markets such as Australia and New Zealand, supporting Australasian currencies, he says. It is expected to make its announcement late this afternoon.

In April the BOJ announced the biggest bond buying programme relative to the size of the economy of any nation. Figures yesterday, showed Japan's economy grew at a revised annual pace of 4.1 percent in the first quarter, greater than the initial 3.5 percent estimate.

Meanwhile, the kiwi edged up against the greenback, recently trading at 78.99 US cents from 78.30 cents at 5pm in Wellington yesterday.

New Zealand's central bank is expected on Thursday to keep the benchmark interest rate at a record low 2.5 percent as it juggles conflicting tensions between a higher kiwi and rising property prices.

In the US, Treasuries fell after Standard &Poor's raised the government's credit outlook to stable from negative, increasing speculation the Federal Reserve may slow monetary stimulus.

The kiwi advanced to 83.40 Australian cents from 83.19 cents yesterday. It edged up to 59.57 euro cents from 59.41 cents and advanced to 50.69 British pence from 50.41 pence.

The trade-weighted index gained to 73.98 from 73.52.

(BusinessDesk)