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2009-04-04 02:11:57

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# 1 Yen Gains as Stock Losses Sap Demand for Higher-Yielding Ass

Yen Gains as Stock Losses Sap Demand for Higher-Yielding Assets
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By Anchalee Worrachate and Yasuhiko Seki

April 7 (Bloomberg) -- The yen climbed from a five-month low against the dollar as U.S. stock futures declined on concern losses and writedowns at the world’s biggest banks will increase, damping demand for higher-yielding assets.

The yen strengthened most against the Taiwanese and New Zealand dollars after billionaire investor George Soros said gains in stocks are a “bear-market” rally and the Times of London reported that the International Monetary Fund will raise its estimates for U.S. bad debt. The Bank of Japan said today it will increase funds to commercial banks by broadening the range of collateral it accepts in an effort to encourage lending.

“It’s a near-term correction of the yen after a recent decline which was driven by a rally in risk assets,” said Lee Hardman, a currency strategist in London at Bank of Tokyo- Mitsubishi UFJ Ltd. “Overall, we remain bearish the yen. This is just a rebound in a weakening trend.”

Japan’s currency strengthened to 100.48 per dollar as of 8:53 a.m. in London, from 100.99 in New York yesterday. The yen appreciated to 134.23 per euro, from 135.49. The dollar gained to $1.3349 per euro, from $1.3416.

The yen’s gains versus the dollar and the euro, the first in four days, came as Standard & Poor’s 500 Index futures slid 0.2 percent and the MSCI Asia Pacific index of shares fell 0.3 percent.

“It’s a bear-market rally because we have not yet turned the economy around,” Soros, 78, said in an interview yesterday with Bloomberg Television, referring to the recent rebound in stock prices. “This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime.”

IMF Estimates

The IMF will raise its estimates for U.S. bad debt to $3.1 trillion from a January prediction of $2.2 trillion, with estimates of another $900 billion of toxic assets from Europe and Asia, the Times newspaper said today without saying where it got the information.

The Australia dollars rose against the U.S. currency, reversing losses, after the Reserve Bank of Australia cut interest rates less than traders anticipated. RBA Governor Glenn Stevens cut rates by 25 basis points, less than the 50 basis- point reduction indicated by a Credit Suisse Group index based on swaps trading.

The so-called Aussie had risen 12 percent since the RBA left its key rate on hold at 3.25 percent on March 3.

Carry-Trade ‘Risk’

“Given expectations for more rate cuts in Australia, it seems to be still risky to resume a yen carry trade type of investment,” said Sho Komamura, a foreign-exchange dealer at Hachijuni Bank Ltd. in Tokyo. “I won’t deny there may be investors who think that as long as there are some interest-rate differentials, such trades will pay off.”

Australia’s dollar advanced 0.2 percent to 71.55 U.S. cents, after earlier falling as low as 70.45 cents. New Zealand’s dollar dropped 0.7 percent to 58.21 U.S. cents, halting a four-day advance.

In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher rates. The risk is that market moves can erase those profits.

Bank of Japan Governor Masaaki Shirakawa and his colleagues decided by a unanimous vote to keep the benchmark lending rate unchanged at 0.1 percent today.

The Federal Reserve and four other central banks announced a currency swap arrangement that will give the U.S. central bank access to as much as $285 billion in euros, yen, British pounds and Swiss francs, the Fed said in a statement yesterday.

“Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets,” the Fed said in the statement.

Euro Declines

The euro weakened for a second day against the dollar on speculation European Central Bank policy makers will signal this week it may sell the currency to help protect the region’s exporters.

The euro extended losses from a one-week high yesterday after ECB Executive Board member Lorenzo Bini Smaghi said the bank can intervene in the currency market if needed. The euro advanced 5.5 percent in the past month, increasing concern the 16-nation region’s recession will deepen as exports slump.

“Smaghi seems to be suggesting the euro is beyond the bank’s expected range,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “It’s possible the central bank could intervene. The euro may decline.”

ECB Council Member Vitor Constancio will attend a presentation in Lisbon today and fellow member Yves Mersch will chair discussions at a conference in Luxembourg on April 9.

‘Excuse to Sell’

Demand for the yen also increased on optimism a finance ministry report tomorrow will show Japan had a current-account surplus in February. The nation posted its first deficit in 13 years in January.

“The shrinking current-account surplus was recently used as an excuse to sell the yen,” said Akio Yoshino, chief economist in Tokyo at Societe Generale (Japan) Co., a unit of the French asset management firm that supervises the equivalent of $338 billion. “Signs of change to this trend means that there is no longer a strong reason to sell the yen.”

Japan had a current-account surplus of 1.07 trillion yen ($10.6 billion) in February, according a Bloomberg News survey of economists. The deficit in January was 172.8 billion yen.

The dollar may rise to its highest level against the yen since August after the current rally pauses, Standard Chartered Bank said, citing trading patterns.

The greenback’s weekly chart versus the yen is “bullish” as the dollar is finding support from a rising 50-week momentum oscillator, Callum Henderson, Singapore-based global head of currency research at Standard Chartered, wrote in a note today. At the same time, short-term momentum indicators are “mixed, suggesting consolidation,” he said.

“The dollar-yen is expected to continue to trend higher over the coming three months,” Henderson wrote. “This should target 110, with some potential for 112-113.”

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

2009-04-07 08:01:05

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