18.06.201305:52:49UTC+00Yen pull back versus Dollar on Fed tapering, BOJ stimulus prospects

The yen retreated for a second day versus the dollar before the Federal Reserve starts a two-day meeting today amid speculation about when the central bank will slow its quantitative easing program of bond purchases.

The yen loss its power versus most of its 16 major peers after a Bank of Japan report showed its current-account balance will rise to a record amid unprecedented monetary stimulus. Demand for the greenback was supported before U.S. reports today that may show inflation is picking up and the housing market is improving. The euro was near an almost four-month high against the dollar before German data forecast to show investor confidence advanced.

U.S. Economy

The U.S. consumer-price index probably rose 0.2 percent in May from a month earlier, economists forecast in a Bloomberg News survey before the release of Labor Department figures today. The gauge dropped 0.4 percent in April, the most since December 2008.

‘Uncertain’ Outlook

“Market participants are uncertain about the outlook for extraordinary policy support being provided by the Federal Reserve and the Bank of Japan,” he wrote. “Hedgers such as real money managers and corporates may consider taking cover against the risk of heightened volatility.”

The BOJ last week refrained from adding to its stimulus program or expanding its toolkit for tackling volatility in bonds. In April, it said it would double monthly purchases of government bonds to more than 7 trillion yen ($74 billion) to achieve 2 percent inflation in two years.

The central bank estimated today that its current-account balance, a measure of financial firms’ deposits at the central bank, will rise to a record 75.5 trillion yen.

The yen has fallen 6.9 percent this year, the worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has risen 2.7 percent, and the euro gained 4.2 percent.

The ZEW Center for European Economic Research in Mannheim is scheduled today to release the latest reading of its index of investor and analyst expectations in Germany. The gauge, which aims to predict economic developments six months in advance, probably rose to 38.1 in June, the highest in three months, from 36.4 in May.