NZ dollar jumps against yen after Abe win in upper house of Diet

The New Zealand dollar gained against the yen on expectations Prime Minister Shinzo Abe will kick off a new round of stimulus after his conservative party swept the upper house in the weekend election.

The kiwi climbed to ¥74.16 at 8am in Wellington from  ¥73.67 yesterday. Still, the trade-weighted index fell from a 14-month high, trading at 77.25 from 77.68 yesterday as traders scaled back their bets on the local currency against other cross-rates.

The yen weakened against most major currencies after Mr Abe declared victory yesterday with his ruling conservative party winning a majority in the 121-seat upper house in Japan. Mr Abe signalled he will concentrate on the economy, and is expected to unveil a fiscal stimulus package reported to be more than  ¥10 trillion.

"The big mover of the day has been the yen, following the decisive victory by the ruling conservative party in Japan's upper house elections," Bank of New Zealand currency strategist Jason Wong said in a note. "The Nikkei 225 index shot up by 4%, on hopes that further economic stimulus would come sooner than expected. Mr Abe later announced that he would order preparation of an economic stimulus package today."

The kiwi fell against the greenback, trading at 72.19USc at 8am in Wellington from 72.78USc yesterday as it retraced recent gains that propelled it to a 14-month high. Traders have been pondering the course for New Zealand interest rates since Reserve Bank deputy governor Grant Spencer's speech last week, which disappointed some in the market who were expecting new macroprudential policies to alleviate heat in the housing market and allow for more rate cuts.

Assistant governor John McDermott will deliver a speech tomorrow on how the Reserve Bank makes a policy decision, which the bank stressed wouldn't include discussion or guidance about next month's meeting.

Mr Wong said the underperformance of the kiwi was consistent with his team's view that "the market over-reacted to the Reserve Bank speech on the housing market last week."

The kiwi fell to 95.82Ac from 96.19Ac yesterday ahead of an Australian business confidence survey.

The local currency dropped to 4.8287 Chinese yuan from 4.8663 yuan yesterday and declined to 65.24 euro cents from 65.89 cents. It fell to 55.56 British pence from 56.16 pence yesterday.

(BusinessDesk)