Yen tumbles on renewed rate cut talk

LONDON (Reuters): Speculation that the Bank of Japan could effectively start paying banks to borrow its cash caused the yen to tumble on Friday and gave government bonds a lift after a second bruising week.

Disappointing earnings reports on Thursday from some of the world’s biggest tech companies weighed on stocks. In Europe, euro zone business data showed an unexpected slowdown in April.

In addition, finance chiefs were meeting in Amsterdam to discuss whether Greece was making the necessary progress on its reforms. The head of the International Monetary Fund said it wasn’t.

In Japan, a Bloomberg report that the central bank might go even further with negative interest rates caused the yen to fall to 110.34 yen per dollar and 124.93 to the euro.

The Bank of Japan, which meets next week, has two lending facilities. One offers banks zero-interest funding for loans to companies in high-growth industries and one provides zero-interest long-term funds to banks that increase lending more generally.

The BOJ would consider applying negative rates on both facilities, Bloomberg reported - paying commercial banks to accept funding.

“That puts a different light on the BOJ meeting and suggests they might be more creative than the markets had given them credit for,” said Rabobank FX strategist Jane Foley. “Clearly we have seen the yen suffer on the back of that.”

The Federal Reserve also meets next week. Healthy markets and encouraging data over the past month have left some investors wondering whether they might have been too quick in pricing out an increase in U.S. rates this year.

German Bund yields were on course for a weekly gain, although they fell on Friday in reaction to the BOJ talk. The bond market has also been tracking oil prices because of their impact on inflation, and crude is up by more than two-thirds from its $27 a barrel low in January.

Car problems

European shares were down 0.5% as car stocks felt the effect of more problems with diesel-engine emission tests. Daimler said it was investigating its U.S. emissions. PSA Peugeot Citroen said it was raided by French anti-fraud investigators over the issue.

In Asia, the BOJ speculation helped Tokyo’s Nikkei erase early and end the day up 1.2% at an 11-1/2 week high.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.8%, mostly as traders cashed in on the 5 1/2-month high reached on Thursday.

A subdued start was expected in the United States. Stocks there suffered their first loss in four sessions after disappointing earnings reports, particularly from Google’s parent, which saw around $32 billion wiped off its market value.

Brent crude futures LCOc1 hovered at just under $45 a barrel, bringing Brent gains since Monday to over 4%. U.S. crude CLC1 rose 1% to $43.58, up 8% on the week.

The 10-year U.S. Treasuries yield last stood at 1.8559%, compared with 1.752% at the end of last week. It rose to a three-week high of 1.891% on Thursday.

Among commodity currencies, the Australian dollar advanced 0.2% to $0.7754, off its 10-month high of $0.7836 touched the previous day.

Gold slipped and silver pared gains as the dollar strengthened, but both were still headed for weekly gains. Silver rose to an 11 1/2-month high earlier this week.