BLBG: Yen Advances Versus Euro on U.S. Job Concern, Global Stock Drop
By Yoshiaki Nohara and Ron Harui
Oct. 2 (Bloomberg) -- The yen touched the highest level in more than two months against the euro before a government report that economists say will show U.S. employers cut jobs for a 21st month, boosting demand for Japan’s currency as a refuge.
The euro headed for a second weekly loss against the dollar on speculation Group of Seven finance officials meeting in Istanbul this weekend will discuss the euro’s gains. Japan’s currency touched a two-week high versus the New Zealand dollar as Asian stocks extended a global slump, prompting investors to sell higher-yielding assets.
“Risk aversion is coming back with stocks falling and the U.S. economic outlook remaining iffy,” said Masato Mori, senior manager of the business and marketing department at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “That’s helping the yen and the dollar.”
The Japanese currency strengthened to 130.06 versus the euro as of 2:50 p.m. in Tokyo from 130.35 in New York yesterday. It earlier reached 129.64, the highest level since July 14. The greenback was at $1.4540 per euro from $1.4545. It earlier touched $1.4503, the highest level since Sept. 10.
The yen was at 89.44 per dollar from 89.60. Japan’s currency rose to 63.81 per New Zealand dollar from 64.03. Earlier it climbed to 63.44, the strongest level since Sept. 14.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency versus six counterparts including the euro and yen, was little changed at 77.148.
U.S. Data
U.S. employers cut 175,000 jobs in September after a reduction of 216,000 in August, according to the median forecast of economists surveyed by Bloomberg News. A separate survey showed the U.S. unemployment rate rose to 9.8 percent in September from 9.7 percent in August. The Labor Department will release the figures today in Washington.
“We have to remember the growth going forward is going to be a lot slower than growth we’ve seen over the past five years,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Risk appetite will be tempered a little bit. The U.S. dollar will be supported.”
Goldman Sachs Group Inc. yesterday changed its forecast on the payrolls data to show larger cuts, citing “disappointing” economic data, including the number of people receiving jobless benefits. Payrolls probably fell by 250,000 workers last month rather than the 200,000 Goldman Sachs had previously estimated, chief U.S. economist Jan Hatzius said in a note to clients.
Japan’s jobless rate unexpectedly declined in August from a record high in July, the statistics bureau reported today in Tokyo. The unemployment rate fell to 5.5 percent from 5.7 percent. Economists called for a rise to 5.8 percent.
G-7 Meeting
The euro reached $1.4844 on Sept. 23, the highest level in a year, making European exports more expensive.
The 16 nations that use the euro have a “shared interest in a strong and stable international financial system,” European Central Bank President Jean-Claude Trichet said yesterday after a meeting of euro-area finance ministers in Sweden before the G-7 gathers in Istanbul.
“Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” Trichet said.
Portuguese Finance Minister Fernando Teixeira dos Santos also said yesterday European officials are concerned about the impact of the euro’s advance on the region’s exports. U.S. Treasury Secretary Timothy Geithner reiterated that a “strong dollar is very important” to the U.S.
Euro’s Strength
“Worries are high that this weekend’s G-7 meeting will discuss the euro’s strength,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “These concerns are likely to weigh on the euro, especially against the yen, which may be also benefiting from a slight rise in risk aversion.”
G-7 finance ministers and central bankers may break with tradition and choose not to release a statement on the global economy and currencies, said officials who declined to be identified. The G-20 anointed itself last week as the global economy’s main policy forum.
An increase in carry trades funded in the dollar may push the greenback toward $1.50 against the euro, Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong, said in an interview with Bloomberg Television.
“But that is likely to be the top,” he said. “In fact, I would expect some verbal intervention from the ECB and finance ministers from the eurozone if it goes above $1.50.”
Risk Aversion
The yen headed for a second weekly advance against the euro as concern mounted that a rally in Asian equities had outpaced prospects for a global economic recovery, spurring investors to sell stocks in favor of safer assets.
The MSCI Asia Pacific Index of regional shares slid 2 percent and Japan’s Nikkei 225 Stock Average slipped 2.5 percent. The VIX Index, a measure of stock-market volatility known as Wall Street’s fear gauge, climbed to 28.27 yesterday, the highest level since Sept. 3, from 25.61 on Sept. 30.
“Risk aversion is being fueled by worries over the durability of the recovery around the world, especially the U.S.,” said Yuji Saito, head of the foreign-exchange group at Societe Generale SA, France’s third-largest bank. “Equities are also weak and another reason to avoid risk. The bias is for the yen and the dollar to be bought.”
Japan’s currency rose to a six-month high on a trade- weighted basis last month amid speculation the Federal Reserve will keep interest rates low and the government led by Yukio Hatoyama won’t intervene to stem the yen’s gain.
Yen Effective Rate
The yen’s real effective exchange rate advanced 3.1 percent in September from a month earlier to 118.5, the fastest increase since December, the Bank of Japan said today in Tokyo. The gauge measures the yen’s value against the currencies of 15 trading partners after adjusting for inflation.
With interest-rate differentials between Japan and the U.S. having little room to narrow, “the yen may rise to as high as 85 per dollar, though its unlikely to strengthen further than that,” said Yuji Kameoka, senior economist at Daiwa Institute of Research in Tokyo.
