American focus: The euro dropped for the first time in three days

The yen rose for a second day versus the dollar, extending a rally from a 29-month low, amid ebbing risk appetite and bets the currency’s three-month slide already incorporates proposed Bank of Japan stimulus measures. The yen gained versus all of its 16 most-traded peers even as Finance Minister Taro Aso said Japan will buy euro-denominated sovereign debt to help weaken the currency.

The Bank of Japan next meets Jan. 21-22. Policy makers boosted stimulus at their previous gathering in December while refraining from raising their inflation goal from 1 percent. Newly elected Prime Minister Shinzo Abe had called for a doubling of the inflation measure.

Japan will use foreign-exchange reserves to buy European Stability Mechanism bonds to help weaken the yen, Aso told reporters today in Tokyo. The decision will also help the “financial stability of Europe,” he said.

The Japanese government will watch the currency market “closely” and will strengthen cooperation with the BOJ to counter deflation, according to a draft of its emergency economic measures released today. Abe said on Jan. 1 that “bold” monetary policy was one of the three prongs of his economic plan.

The euro dropped for the first time in three days, approaching its 50-day moving average of $1.2995. The euro headed toward its 50-day moving average versus the dollar after failing to breach it for the past two days. Moving averages, which indicate momentum, are seen by some traders as potential turning points in the direction of a currency’s price.

The pound fell toward the weakest level in a month against the dollar before a Bank of England meeting this week. Policy makers are forecast to keep interest rates at a record low as they struggle to stoke a recovery. The U.K. economy shrank 0.1 percent last year, while the U.S. expanded 2.2 percent, according to a Bloomberg News surveys.