BLBG: Yen Drops as Signs of Recovery Spur Risk Demand, Fujii Resigns
By Ben Levisohn and Inyoung Hwang
Jan. 6 (Bloomberg) -- The yen fell against all of its most- traded counterparts as evidence of a global economic rebound encouraged demand for higher-yielding assets and Japan’s Finance Minister Hirohisa Fujii resigned.
The dollar rose against the yen for the first time in three days as the extra yield on two-year Treasury notes compared with Japan’s debt widened. Australia’s dollar was the best performer against the greenback among major currencies and the Canadian dollar rose for a fifth day as metals prices climbed.
“You have a little bit of uncertainty with the new finance minister, and he’s not someone we know very well,” said Tom Fitzpatrick, chief technical analyst at Citigroup Inc. in New York. “Dollar-yen still trends with yields, and you’ve seen a pickup in yields.”
The yen weakened 0.7 percent to 92.38 per dollar at 10:03 a.m. in New York, from 91.71 yesterday. The yen slid 0.7 percent to 132.70 versus the euro, from 131.75. The euro traded at $1.4366, compared with $1.4365, after dropping earlier as much as 0.6 percent to $1.4284.
Mexico’s peso appreciated 1 percent to 7.23 yen and the Norwegian krone gained 0.8 percent to 16.17 yen on speculation investors will increase carry trades, in which they buy higher- yielding assets with amounts borrowed in nations with low interest rates. The 0.1 percent benchmark in Japan makes its currency popular for funding such transactions.
Services Report
The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which account for almost 90 percent of the economy, increased to 50.1 in December from 48.7 in the previous month. The median forecast of 67 economists in a Bloomberg News survey was for an increase to 50.5. Readings above 50 signal growth.
The dollar was little changed against the euro as Roseland, New Jersey-based ADP Employer Services reported today that U.S. companies eliminated 84,000 jobs in December, the fewest since March 2008. The median forecast of 31 economists in a Bloomberg News survey was for a reduction of 75,000.
“It was more or less in line with expectations, and we haven’t seen a major shift right now,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “If we do see a nonfarm payroll contraction, we will see some disappointment.”
Employers in the U.S. quit cutting jobs last month after a reduction of 11,000 positions in November, according to the median estimate of 73 economists in a Bloomberg News survey. The Labor Department’s nonfarm payrolls report is due Jan. 8.
U.S. Versus Japan
The difference in yield between U.S. and Japanese 2-year debt widened 0.02 percentage point to 0.87 percentage point after narrowing over the previous two days. The spread was 0.98 percentage point at the beginning of the year, the widest level since August.
Japan’s Prime Minister Yukio Hatoyama named Deputy Premier Naoto Kan as the new finance minister, replacing Fujii, 77, an advocate of a stronger yen who resigned on health grounds.
“Kan is likely to continue the shift from strong- to weak- yen policy,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. The appointment will “raise political and fiscal uncertainty,” he said.
The Australian dollar advanced 0.5 percent to 91.63 U.S. cents and the Canadian dollar gained 0.4 percent to C$1.0353 per U.S. dollar on the rally in metals.
The euro weakened earlier versus the dollar after Italy’s Il Sole 24 Ore newspaper cited the European Central Bank policy maker Juergen Stark as saying markets can’t assume other nations will rescue Greece. Stark, a member of the ECB’s executive board, said markets are “deluding themselves” if they think the EU will bail out Greece, according to Il Sole.
Greece’s Deficit
Greece’s plan to cut the European Union’s widest budget deficit, estimated at 12.7 percent of gross domestic product last year, will be scrutinized by EU officials in Athens today.
The euro fell 4.6 percent versus the dollar in December as Greece’s bonds plunged and concern mounted that fiscal problems would also engulf Spain, Ireland and other euro-region members.
There’s “fear that Greece will default and that other countries like Spain and Ireland will follow,” said Antje Praefcke, a currency analyst at Commerzbank AG in Frankfurt. “This means heightened uncertainty.”
To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net
