BLBG: Yen Rises as Australia Retail Sales Drop Spurs Recovery Concern
By Yoshiaki Nohara and Ron Harui
Nov. 4 (Bloomberg) -- The yen rose against the euro for a second day on concern the global economic recovery is slowing after a government report showed Australian retail sales unexpectedly dropped.
The yen strengthened against 14 of 16 major counterparts after Japanese Finance Minister Hirohisa Fujii today said the government will probably cover a tax revenue shortfall with debt sales, adding to signs the nation’s economic recovery will take time. The U.S. dollar fell against the yen on speculation the Federal Reserve will today repeat its pledge to keep the benchmark interest rate near zero for an “extended period.”
“The unexpected slump in Australian retail sales is sparking worries about the sustainability of the recovery there,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is causing risk aversion and buying of the yen and the dollar as safe-haven currencies.”
The yen advanced to 132.92 per euro at 1:44 p.m. in Tokyo from 133.01 in New York yesterday. Japan’s currency strengthened to 90.23 against the dollar from 90.33. The greenback was at $1.4732 per euro from $1.4724.
Australia’s dollar dropped after a report showed the nation’s retail sales fell 0.2 percent in September after rising 0.7 percent in August. Economists surveyed by Bloomberg expected a 0.5 percent gain.
The data came a day after the Reserve Bank of Australia said it was “prudent to lessen gradually” the stimulus provided by low borrowing costs.
Risk Aversion
“The market is a bit sensitive after the RBA was more dovish than expected yesterday and so we’re seeing a relatively sharp reaction to modestly weaker data,” said Thomas Harr, a senior currency strategist at Standard Chartered Plc in Singapore. “You have declining risk appetite in markets at the moment, and therefore there’s more focus on the negatives.”
Australia’s dollar, the world’s best-performing currency in the past year with a 29 percent climb against the greenback, traded at 90.31 U.S. cents from 90.24 cents; it earlier touched 89.71 cents. The so-called Aussie fell 0.1 percent to 81.47 yen.
Australia’s currency is heading toward parity with the U.S. dollar for the first time since exchange controls ended in 1983, as investors hungry for China’s economic growth buy into the world’s biggest exporter of iron ore used in making steel.
Reserve Bank of Australia Governor Glenn Stevens became the first Group of 20 policy maker to raise interest rates twice this year to curb inflation.
“There is very good demand for the Australian dollar,” said Simon Grose-Hodge, an investment strategist in Singapore at LGT Bank, in a Bloomberg Television interview. “We’re still bullish and we do see it probably by the middle of next year testing that parity level” against the U.S. dollar, he said.
World Bank
East Asian economies will grow faster than initially estimated this year, adding pressure on central banks to tighten policy and allow currency flexibility to prevent asset bubbles, the World Bank said.
Developing East Asia, which includes China, Mongolia, Indonesia, Malaysia, Cambodia, Laos, Vietnam and the Philippines, will grow 6.7 percent this year, more than an April estimate of 5.3 percent, the Washington-based lender said its semi-annual report today. Growth may accelerate to 7.8 percent next year, it said.
Fujii had said last month Japan’s budget deficit for the year ending March 31 may be “quite large” as tax revenue falls, an indication bond sales may exceed 50 trillion yen.
Tax Revenue Down
Japan’s tax receipts may drop below 40 trillion yen in the fiscal year, less than the earlier 46 trillion yen forecast, Fujii said on Oct. 20.
“The idea of covering falling tax revenue with debt damps the economic outlook,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG. “That may be adding to risk aversion,” boosting demand for the yen.
The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders. The dollar benefits as the world’s main reserve currency.
The Fed will release its monetary policy statement today at the end of a two-day meeting. Policy makers will hold the benchmark interest rate target in a range between zero and 0.25 percent, according to the median estimate of economists in a Bloomberg News survey.
Fed
“The Fed will have no choice but to keep interest rates for a while,” said Minoru Shioiri, Tokyo-based chief manager of foreign exchange trading at Mitsubishi UFJ Securities Co. “There’s still too much supply of the dollar in the market. The bias is for the dollar to weaken at least by year-end.”
Losses in the euro were limited before a German report this week that may show factory orders rose for a seventh month, backing the case for the European Central Bank to refrain from lowering interest rates.
Orders, adjusted for seasonal swings and inflation, gained 1 percent in September from August, when they climbed 1.4 percent, a Bloomberg survey of economists showed before the Economy Ministry releases the data on Nov. 6 in Berlin. The European Commission yesterday raised its forecasts for the euro- area economy, saying the region will return to growth next year.
“The euro-zone economy seems to be doing well, compared with economies in the U.S. and Japan,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The bias is for the euro to be bought and the dollar and the yen to be sold.”
The 16-nation region economy will grow 0.7 percent in 2010 and 1.5 percent in 2011, after contracting 4 percent this year, the Brussels-based commission, the European Union’s executive, said in its semi-annual economic forecasts. It previously forecast a 0.1 percent contraction in 2010.
All 56 economists surveyed by Bloomberg News forecast the ECB will leave its benchmark interest rate unchanged at 1 percent at tomorrow’s meeting.
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
