BLBG: Yen Advances as Signs of Slowing Recovery Spur Safety Demand
By Yasuhiko Seki and Ron Harui
Dec. 8 (Bloomberg) -- The yen rose for a second day against the euro and the dollar as signs the global economic recovery is losing momentum spurred demand for Japan’s currency as a refuge.
The yen gained versus all of its 16 major counterparts before reports forecast to show a slowing expansion in U.K. manufacturing and a widening U.S. trade deficit. The dollar was poised to end a four-day advance versus Australia’s currency after Federal Reserve Chairman Ben S. Bernanke said the U.S. faces “formidable headwinds,” reducing speculation about an early end to the central bank’s economic stimulus measures.
“People are turning cautious about the risk trade again due to uncertainties over the prospects for the recovery,” said Shuzo Kakuta, senior foreign-exchange adviser at Tokyo Tomin Bank Ltd. Investments in higher-yielding assets are “vulnerable to unwinding.”
The yen climbed to 132.01 per euro as of 1:36 p.m. in Tokyo from 132.71 yesterday in New York. Japan’s currency advanced to 88.98 per dollar from 89.51. The greenback was at $1.4836 per euro from $1.4827 yesterday when it appreciated to $1.4756, the strongest level since Nov. 4.
Australia’s currency traded at 91.36 U.S. cents from 91.27 cents, and New Zealand’s dollar bought 71.45 U.S. cents from 71.33 cents.
U.K., U.S. Data
U.K. factory output rose 0.4 percent in October after a 1.7 percent increase the prior month, according to a Bloomberg News survey of economists before the Office for National Statistics releases the data today in London. U.K. retail sales climbed 1.8 percent in November from a year ago, after a 3.8 percent gain in October, the British Retail Consortium said earlier today.
The U.S. trade deficit widened to $36.9 billion in October from $36.5 billion in September, according to a Bloomberg News survey of economists before the Commerce Department’s report on Dec. 10.
The yen tends to strengthen amid economic and financial turmoil because Japan’s trade surplus reduces reliance on foreign capital. The nation’s current-account surplus increased 42.7 percent to 1.4 trillion yen ($15.7 billion) in October from a year earlier, the Ministry of Finance said today as worldwide government stimulus spending helped ease declines in exports.
Japan’s government today unveiled a 7.2 trillion yen economic spending package. The plan includes 3.5 trillion yen to help regions, 600 billion yen for employment and 800 billion yen on environmental initiatives, the Cabinet said today in a statement.
The dollar weakened against 12 of 16 major counterparts today after Bernanke’s remarks dashed speculation for an early U.S. rate increase.
‘Some Way to Go’
“We still have some way to go before we can be assured that the recovery will be self-sustaining,” the Fed Chairman said in a speech to the Economic Club of Washington. “My best guess at this point is that we will continue to see modest economic growth next year -- sufficient to bring down the unemployment rate, but at a pace slower than we would like.”
Futures on the Chicago Board of Trade showed a 46 percent chance the Fed will raise the target lending rate by at least a quarter-percentage point by its June meeting, down from 54 percent odds on Dec. 4. The central bank next meets to review borrowing costs on Dec. 16.
“Dovish comments from Bernanke enhance the view that interest rates will stay on hold for some time,” said Daisaku Ueno, an analyst in Tokyo at Gaitame.Com Research Institute Ltd., a unit of Japan’s largest currency margin company. “It will take at least a few more months or even six months before Fed officials can confirm a sustainable recovery of the job market.”
Demand for the yen also strengthened on speculation companies including Hitachi Ltd. and Mitsubishi UFJ Financial Group Inc. will bring home funds from share and asset sales.
Raising Capital
“Japanese firms, such as those raising capital from selling shares and assets abroad, are likely to repatriate money,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “This is a yen-positive factor.”
Hitachi said in a statement last month it may sell 400 million shares to Japanese investors and 600 million shares to overseas buyers at a price to be set between Dec. 7 and Dec. 10. Mitsubishi UFJ plans to offer about 1 trillion yen of stock, according to documents sent to investors. The price for the sale will be set as early as Dec. 14, said Daiwa Securities Group Inc., one of the underwriters.
Taiwan’s dollar strengthened for the first time in three days after rising demand from China helped lift the island’s exports for the first time in 15 months.
China Trade
Overseas sales climbed 19.4 percent from a year earlier in November, led by a 56 percent jump in shipments to China, the government reported late yesterday. Taiwan’s currency has gained 2 percent in the past six months and in October reached its strongest level in a year versus the greenback as deepening trade and investment ties with the mainland bolstered demand for the island’s assets.
“The Taiwan dollar remains on a trend of rising slowly,” said Tigr Cheng, a strategist at Polaris Securities Co. in Taipei. “Closer relations with China help attract funds.”
The Taiwan dollar added 0.1 percent to NT$32.23 against its U.S. counterpart.
To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
