Yen Declines on Speculation Japan Will Intervene; Aussie, Kiwi Strengthen

Dated Posted: 2011-07-13

Jesper Koll, head of equity research at JPMorgan Chase & Co. in Tokyo, talks about Japan's economy and financial markets. Koll also discusses the resignation of Japan's disaster reconstruction minister and its implications for embattled Prime Minister Naoto Kan's administration. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

The yen weakened from its strongest level since policy makers jointly intervened in foreign-exchange markets in March amid speculation Japan will sell its currency again to support exporters.

The yen fell versus all its major counterparts after Finance Minister Yoshihiko Noda said its moves have been a bit one-sided. The currency earlier climbed to 78.50 per dollar, the highest level since March 17, as concern Europe’s debt crisis is spreading boosted demand for safer assets. The Australian and New Zealand dollars rose after China reported economic growth and industrial output expanded more than analysts predicted.

“The market is cautious about a possible intervention,” said Daisaku Ueno, Tokyo-based president of Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency broker. “The yen was sold off in the early morning in Asia while the market was thin. That reminds me of how the March intervention happened.”

Japan’s currency fell to 79.49 per dollar as of 1:56 p.m. in Tokyo from 79.24 in New York yesterday, after gaining 2.5 percent over the previous three days. The yen dropped 0.4 percent to 111.19 per euro after rising to 109.58 yesterday, the strongest since March 17. The euro was at $1.3989 from $1.3976 yesterday, when it fell to $1.3837, the weakest since March 11.

Japan’s Chief Cabinet Secretary Yukio Edano echoed Noda’s comments, saying rapid foreign-exchange moves were not “desirable.” Group of Seven nations jointly sold Japan’s currency on March 18 after the yen reached a postwar record of 76.25 per dollar the previous day, threatening the nation’s recovery from the March 11 earthquake and tsunami.

‘Not Helpful’

“What they’re concerned about is their export competitiveness much like the rest of Asia,” said Douglas Borthwick, head of foreign-exchange trading at Stamford, Connecticut-based Faros Trading. “Obviously a stronger yen isn’t helpful toward that.”

Borthwick predicted Japan would be prompted to sell yen if the currency gained about 1 percent more against China’s yuan and 5 percent versus the South Korean won.

The yen’s relative strength index against the euro climbed to 30 yesterday, a level some traders see as a sign an asset’s price has risen too fast and is poised to reverse direction.

The yen tends to strengthen during economic and financial turmoil because Japan’s trade surplus makes the nation less reliant on foreign capital.

Aussie, Kiwi Gain

Australia’s dollar rose for the first time in four days against the yen and the greenback after China’s economic data pushed up stocks across Asia.

China’s gross domestic product rose 9.5 percent in the second quarter from a year earlier, the statistics bureau said in Beijing. The median estimate was 9.3 percent in a Bloomberg News survey of economists. Industrial output advanced 15.1 percent in June, the most since May 2010.

The Chinese numbers are “good news for currencies in the region,” said Richard Yetsenga, global head of foreign-exchange strategy at Australia & New Zealand Banking Group Ltd. The Aussie and the kiwi “are going to appreciate over the course of the day.”

Australia’s dollar strengthened 0.3 percent to $1.0624, and gained 0.5 percent to 84.40 yen. The New Zealand currency advanced 0.3 percent to 82.09 U.S. cents.

Europe Concern

Gains in the euro were tempered on concern the region’s debt crisis will keep spreading after Ireland yesterday became the third euro-area nation to have its credit rating cut to below investment grade.

Moody’s Investors Service lowered Ireland to Ba1 from Baa3 yesterday, citing the probability the country will require additional official financing. The outlook remains “negative,” Moody’s said in a statement.

The Italian Treasury is scheduled to sell as much as 5 billion euros ($6.99 billion) of bonds tomorrow amid concern it will be drawn into turmoil that’s forced Greece, Ireland and Portugal to seek bailouts.

“The euro is a sell on rallies at the moment as I can’t see any light yet out of Europe,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “Italy is a big concern and it’s the whole contagion trade.”

South Korea’s won advanced for the first time in three days against the dollar after a government report showed the jobless rate held at 3.3 percent in June, the lowest level since November. Finance Minister Bahk Jae Wan said the figures were “unexpectedly strong.”

“Economic fundamentals have been relatively strong and that gives room for the currency to rise in the middle to longer term,” said Seo Jeong Hun, an analyst at Korea Exchange Bank based in Seoul.

The won strengthened 0.4 percent to 1,061.85, ending a two- day decline.

 

 

Source:  Bloomberg