The dollar rose the most in a week against the yen on bets the Federal Reserve will further scale back stimulus while the Bank of Japan expands measures to counter the risk of deflation.
The U.S. currency advanced against all but one of its 16 major counterparts before reports this week that economists said will show manufacturing growth accelerated while existing-home sales rebounded. The greenback strengthened to the most against the Canadian dollar since 2009. The yen fell as the Bank of Japan began a two-day meeting amid speculation Governor Haruhiko Kuroda will extend stimulus to counter the impact of a planned sales-tax increase.

“The overall fundamental picture is in favor of the dollar,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “Data suggest the U.S. economy is strong enough for the Fed to gradually reduce the stimulus. The market will continue to watch economic reports closely and any improvement will further fuel speculation in that direction.”

The dollar rose 0.5 percent to 104.69 yen at 6:50 a.m. New York time, the biggest increase since Jan. 14. It advanced to 105.44 yen on Jan. 2, the most since October 2008. The U.S. currency gained 0.2 percent to $1.3528 per euro and appreciated as much as 0.6 percent to C$1.1019, the highest level since September 2009. The euro gained 0.3 percent to 141.60 yen.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, advanced for a sixth day, rising 0.4 percent to 1,037.27, headed for its longest winning streak since Nov. 1.

Fed bets

Fed policy makers said on Dec. 18 they would cut monthly bond buying to $75 billion from $85 billion. The Fed’s Open Market Committee will reduce purchases by $10 billion at each meeting to end the program this year, according to economists in a Bloomberg survey conducted Jan. 10.

Thirty-three percent of economists surveyed by Bloomberg News on Jan. 10-15 expect the BOJ to expand its 7 trillion yen of monthly bond purchases in the second quarter as it attempts to stoke inflation and revive growth. The sales-tax increase in April to 8 percent from 5 percent will cause the economy to contract 4.1 percent in the three months to June, according to a separate survey.

Output increases

The Markit Economics preliminary index of U.S. manufacturing climbed to 55 this month from 54.4 in December, according to the median estimate of analysts surveyed by Bloomberg News before the figure is published on Jan. 23. The National Association of Realtors may say on the same day sales of previously-owned homes climbed 1 percent last month after a 4.3 percent drop in November.

The number of Americans continuing to receive jobless benefits fell to 2.9 million in the period ended Jan. 11 from 3 million, according to the median estimate of economists surveyed by Bloomberg before the Labor Department data on Jan. 23.

“The odds are still firmly to the upside for the U.S. dollar,” said Stan Shamu, a Melbourne-based market strategist at IG Ltd. “We’ll continue to see a gradual improvement in the U.S. economy. There’s definitely an aggressive shift in Fed commentary more in favor of tapering in the near term.”

The yen weakened against most of its 16 major peers after Japan Economy Minister Akira Amari said the country still faced risk of falling back into deflation.

‘Monetary pedal’

“Amari’s warning that Japan is escaping deflation but that it could return suggests that the Bank of Japan may keep its foot on a monetary pedal,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce. “That puts pressure on the yen.”

Futures traders decreased bearish bets on the yen, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen against the greenback compared with those on a gain -- so-called net shorts -- was 118,066 on Jan. 14, the least since November and compared with 128,868 a week earlier.

The yen has climbed 2.1 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed- nation currencies. The dollar strengthened 1.4 percent and the euro weakened 0.3 percent. Japan’s currency was the biggest decliner in 2013, tumbling 17 percent.

New Zealand’s dollar has gained 2.7 percent this year, the Bloomberg indexes show, amid speculation the central bank will tighten policy as inflation accelerated.

New Zealand’s consumer prices in the fourth quarter rose 1.6 percent, the fastest annual pace since the first three months of 2012. The Reserve Bank of New Zealand next meets on Jan. 30.

The kiwi slid 0.3 percent to 83.05 U.S. cents.

—With assistance from Masaki Kondo in Singapore and Kevin Buckland and Mariko Ishikawa in Tokyo.