Japanese yen notes are arranged for a photograph in Tokyo. A measure of anticipated yen price swings has fallen this year by the most among major currencies.

Bloomberg
Tokyo

It’s a year since Haruhiko Kuroda sent the yen tumbling with an expansion of his quantitative-easing plan, and currency traders doubt the Bank of Japan governor can repeat his Halloween surprise.
Yen bears are losing faith in both Kuroda’s willingness to expand stimulus at policy meeting and his capacity to do so, cutting bets on declines in the currency to levels not seen since before Prime Minister Shinzo Abe came to power in December 2012. The yen has climbed from a 13-year low in June as US monetary tightening is put off until December at the earliest and global turmoil boosts demand for havens.
A stronger currency risks scuppering the BoJ’s aim of pushing inflation to 2%. And a failure to meet that goal would be a blow for Abe’s so-called three arrows of policy - monetary easing, government spending and business deregulation - - which were introduced to revive the world’s third-largest economy.
“The BoJ’s easing has peaked in its impact on the economy,” said Yoshinori Shigemi, a global market strategist in Tokyo at JPMorgan Asset Management. “The role of monetary stimulus in further weakening the yen and boosting stocks is over.”
Investors are increasingly sceptical Kuroda - who the prime minister hand-picked to lead the BoJ - will be able to expand annual bond purchases that already equate to about 90% of the government’s debt sales.
The yen is this half’s best-performing major currency, gaining 1.3% since June 30, paring its slide since the end of 2012 to 28%. Strategists surveyed by Bloomberg strengthened their median year-end forecast to 123 per dollar, from 125 in September.
The Fed’s policy decisions are seen as potentially more important for the yen than Kuroda’s, with larger moves after the past two US meetings than after the BoJ’s. Fed officials pivoted toward a December interest-rate increase last week, betting job gains will lead to higher inflation and allow them to close an unprecedented era of near-zero borrowing costs.
“The first stage was focused on monetary stimulus sending currencies lower,” said Masashi Murata, vice president at Brown Brothers Harriman & Co in Tokyo. “Now, the focus is on which country raises rates first: the US or the UK. If the Fed does not raise rates in December, that would have a far stronger impact in sending the dollar down against the yen towards 116 or even lower.”
Hedge funds and other large speculators cut net wagers for the yen to weaken to 3,639 contracts in the week ended October 20, the least since the market was last bullish on the currency in October 2012, data from the Washington-based Commodity Futures Trading Commission show. That’s the fifth straight week of declines.
“Many market players seem to doubt the BoJ can match last year’s stimulus scale and the surprise element,” said Minori Uchida, head of global markets research at Bank of Tokyo- Mitsubishi UFJ.
There’s a “yen strengthening risk” if the central bank fails to ease policy, and if it does act, but “markets see it as insufficient or the yen doesn’t weaken much, it leaves the impression the BoJ is done with firing its bazooka,” Uchida said from the Japanese capital.
Economists are more equivocal than yen traders on the prospect of further monetary easing, with 16 of 36 surveyed by Bloomberg predicting Kuroda will act this week. If the BoJ governor does make a move, its impact may be amplified by the market’s complacency.
A measure of anticipated yen price swings has fallen this year by the most among major currencies. Three-month implied volatility versus the dollar dropped to 8.74% on October 21, the lowest on an end-of-day basis since August.
That’s reminiscent of the run-up to the BoJ’s meeting in October 2014 when the central bank pledged to expand the monetary base by an annual ¥80tn ($662bn). Volatility sank to a seven-week low two days before the gathering - only to surge to the highest in more than a year in the weeks afterward.
The decision sent the yen tumbling 2.8% on October 31, the biggest one-day rout in 18 months.
Because of its dwindling firepower, the BoJ’s best chance of spurring inflation may rest on a pick-up in oil prices, which have almost halved in the past year. Still, a rally in crude would pose as many challenges to Japan’s economy as solutions.
While Kuroda said this month the impact of cheap oil will fade, any rebound would risk eroding consumer demand and sapping growth.
In 2013, the yen fell 18% as Kuroda started quantitative and qualitative easing, and in 2014 it dropped 12% when he expanded the programme. Strategists see little chance the authorities can prompt a slide now.
“The BoJ may ease but their options are scarce and seem to be shabby, not impressive,” BBH’s Murata said. “No action may spur some yen buying,” but “that’s more like noise and not trend-setting,” he said. “The BoJ is a minor event.”