BLBG: Dollar, Yen Drop as Japanese Economy Expands More Than Forecast
By Matthew Brown and Yoshiaki Nohara
Nov. 16 (Bloomberg) -- The dollar and the yen fell against higher-yielding currencies including the Norwegian krone as better-than-forecast economic growth in Japan added to signs that the world is recovering from the recession.
The euro rose against 12 of its 16 most-traded peers after a report showed Japan’s gross domestic product expanded at an annual 4.8 percent rate. That was the fastest pace in more than two years and more than the 2.9 percent median economist estimate. The Dollar Index slid as Asia-Pacific leaders pledged to maintain stimulus measures until there’s “durable” growth, reducing the allure of the U.S. currency as a refuge.
“The Japanese data was a big surprise to the upside,” said Lee Hardman, a foreign-exchange strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd. “That has helped fuel risk- sentiment trades and that’s boosting the high-yielding emerging- market currencies against the dollar.”
The dollar weakened to $1.4967 per euro as of 10:07 a.m. in London, from $1.4903 in New York at the end of last week. The yen depreciated to 133.89 per euro, from 133.63. The dollar fetched 89.45 yen, from 89.66 yen.
The U.S. currency dropped 0.7 percent to 5.5721 kroner. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback’s value against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, lost 0.4 percent to 75.020. It declined to 74.774 on Nov. 11, the lowest level since August 2008.
APEC Pledge
The 21-member Asia-Pacific Economic Cooperation group, representing 54 percent of the global economy, pledged in a statement yesterday to “refrain from raising new barriers” to investment and trade. The group didn’t mention currency distortions in the statement, which U.S. companies say give China unfair trade advantages.
China’s Ministry of Commerce said international pressure for appreciation in the yuan was “not fair,” as U.S. President Barack Obama started a four-day visit calling for a more balanced relationship between the two nations.
Seeking a stronger Chinese currency as the dollar weakens “is not conducive to a global economic recovery and is not fair,” ministry spokesman Yao Jian said at a press briefing in Beijing today. “It’s necessary for us to provide a stable and predictable environment in terms of macro-economic and exchange rate policies.”
Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said the appreciation of the yuan is part of the “package of necessary reforms” for China’s economy.
‘Appropriate Policy Actions’
Near-term “concerns about the dollar can be eased with appropriate policy actions from the U.S. authorities,” Strauss- Kahn said in a speech in Beijing today, adding that it would remain the principal reserve currency “for some time.”
The yuan traded at 6.8270 per dollar, versus 6.8263 at the end of last week, according to the China Foreign Exchange Trading System.
The yen strengthened against the dollar on speculation Japanese investors will bring back earnings on overseas assets. The U.S. will make $100.5 billion in redemptions and interest payments on Treasuries today, according to estimates by Stone & McCarthy Research Associates in Princeton, New Jersey.
“The yen is being bought as Japanese investors bring back earnings on Treasuries,” said Takeshi Tokita, vice president of foreign-exchange sales at Mizuho Corporate Bank Ltd. in Tokyo.
Dollar-Yen
The yen, up 13 percent since it reached a more than five- month low on April 6, will be unable to maintain its strength against the dollar as Finance Minister Hirohisa Fujii won’t tolerate a stronger currency, according to UBS AG.
“Coupled with concerns about the sustainability of Japan’s fiscal position, we prefer to be buyers rather than sellers of dollar-yen at current levels,” Gareth Berry, a UBS analyst in Singapore, wrote today in a note to clients.
The yen is poised for its worst tumble since 2005 as doubts about Japan’s fiscal footing double the cost of insuring its debt.
The price of hedging against losses on $10 million of the country’s bonds with credit-default swaps soared this month to as much as $76,160 a year from $37,000 in August, as the new government planned record spending and borrowing even with tax revenue falling.
The rise in debt protection costs contrasts with that of the U.S., where prices have fallen to about the lowest in a year amid unprecedented issuance. The difference in prices reached the widest ever on Nov. 9 after Japan’s debt grew to almost twice the size of the economy.
‘Situation Horrific’
“The Japanese fiscal situation is horrific,” said Richard Benson, who helps oversee $11 billion of currency funds at Millennium Global Asset Management in London. “We went short the yen against the dollar and the euro about a month ago” and then turned “more aggressive” on the trade as credit-default swaps rose and investors dumped Japanese bonds, he said.
The dollar also weakened on speculation Federal Reserve officials will today reaffirm the central bank’s pledge to keep interest rates low to support growth.
The Fed this month repeated its intention to leave borrowing costs “exceptionally low” for “an extended period” as long as inflation expectations are stable and unemployment fails to decline.
Fed Chairman Ben S. Bernanke will speak on the economic outlook at 12:15 p.m. in New York. Dallas Fed President Richard Fisher will speak on the economy at 12:15 p.m. in Tyler, Texas, and Vice Chairman Donald Kohn will speak on “Federal Reserve Policy Challenges” at 5:15 p.m. in Evanston, Illinois.
Economic Reports
Retail sales in the U.S. probably rebounded in October, economists said before a report today. Purchases rose 0.9 percent, according to the median estimate of 66 economists in a Bloomberg survey, after falling in September after the expiration of the “cash for clunkers” automobile rebate program. Excluding autos, sales probably rose 0.4 percent, the third straight increase.
A separate report today may show manufacturing in the New York region expanded at a slower pace in November. The New York Fed’s general economic index declined to 30.0, from 34.6 in October, a Bloomberg News survey of economists showed.
To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
