BS: Yen gains as signs of slowing recovery spur demand for safety
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 UK manufacturing and a widening US trade deficit. The dollar weakened after Federal Reserve Chairman Ben S. Bernanke said the US faces “formidable headwinds,” reducing speculation about an early end to the central bank’s economic stimulus measures. Taiwan’s dollar gained after a report showed exports rose.
“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 131.76 per euro as of 2:41 p.m. in Tokyo from 132.71 yesterday in New York. Japan’s currency advanced to 88.82 per dollar from 89.51. It climbed to a 14-year high of 84.83 on November 27. The greenback was at $1.4833 per euro from $1.4827 yesterday, when it appreciated to $1.4756, the strongest level since November 4.
UK factory output rose 0.4 percent in October after a 1.7-percent increase the previous month, according to a Bloomberg News survey of economists before the Office for National Statistics releases the data today in London. Retail sales in the UK 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 US trade deficit widened to $36.9 billion in October from $36.5 billion in September, according to a separate Bloomberg survey before the Commerce Department report December 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 ($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 economic-spending package. The plan includes ¥3.5 trillion to help regions, ¥¥600 billion for employment and ¥800 billion on environmental initiatives, the Cabinet said in a statement.
The dollar weakened against 11 of 16 major counterparts after Bernanke’s remarks dashed speculation for an early US rate increase.
“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 December 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.” (Bloomberg)
