BLBG: Yen Weakens as China Economic Growth Curbs Demand for Safety
By Lukanyo Mnyanda and Yasuhiko Seki
Jan. 21 (Bloomberg) -- The yen declined after a Chinese report showed economic growth accelerated to the fastest pace since 2007, damping demand for Japan’s currency as a refuge.
The yen dropped the most against the Australian dollar among the 16 major currencies on speculation Japan’s central bank will keep interest rates close to zero as the economy struggles to gain momentum. The euro was near the weakest in five months against the dollar after the cost to protect Greek bonds from default reached a record.
“China has singlehandedly turned foreign exchange markets 180 degrees and the pro-risk currencies are being bought again,” said Neil Jones, head of European hedge-fund sales in London at Mizuho Corporate Bank Ltd. “We expect the yen to become the funding currency of choice longer term.”
The yen slipped to 83.44 per Australian dollar as of 7:57 a.m. in London from 83.04 in New York yesterday. It depreciated to 128.95 per euro from 128.68, and lost 0.4 percent to 12.42 South Korean won. The yen was at 91.52 per dollar from 91.24.
The euro traded at $1.4088 versus the dollar from $1.4106 yesterday, after earlier dropping to $1.4068, the lowest since Aug. 18.
Japan’s currency declined for the first time in six days against the euro after China’s statistics bureau said gross domestic product increased 10.7 percent last quarter, faster than the median forecast of 10.5 percent in a Bloomberg News survey of economists.
Chinese Economy
China will see steady, relatively fast growth this year, Ma Jiantang, head of the National Bureau of Statistics, told a briefing in Beijing today. The external environment will improve and net exports will make a positive contribution to growth this year, he said.
“Infrastructure-related investments are likely to remain robust in China, which may continue to support demand for resources and commodities,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo. “This will then support commodity currencies such as the Australian dollar.”
Credit-default swaps insuring against losses on Greek government debt for five years surged 33 basis points to an all- time high of 350 yesterday, according to CMA DataVision prices. Those for Portuguese and Irish government bonds also increased. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country fail to adhere to its debt agreements.
CDS Spreads
“Worries about some euro-zone countries such as Greece are pushing out their CDS spreads, which may cause selling of riskier assets,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “This is likely to put downward pressure on the euro, which could test the psychologically important $1.40 level in the short term.”
The euro fell to A$1.5453 from A$1.5499 yesterday after earlier dropping to A$1.5418, the weakest since September 2000.
The yen fell to a one-week low against the dollar after a Bank of Japan survey showed demand for lending dropped to the lowest since July 2004 as companies cut spending, stoking speculation the central bank will stand pat on interest rates.
“Given a shaky outlook for the nation’s recovery, the BOJ is most likely to be the last central bank to exit stimulus,” said Shuzo Kakuta, a senior foreign-exchange adviser at Tokyo Tomin Bank Ltd.
BOJ Governor Masaaki Shirakawa said this week that the central bank “is aiming to maintain an extremely accommodative financial environment.”
‘Moderating’ Growth
Losses in the yen were limited on speculation China’s central bank will start raising its benchmark interest rate and tighten restrictions on the nation’s lenders after consumer prices rose 1.9 percent in December from a year earlier.
The People’s Bank of China today guided three-month bill yields higher at an auction for the second time in two weeks, traders said. The Shanghai Composite Index weakened 0.3 percent, falling for a second day.
“China has immediately undertaken a tightening in policy and the perception is that will lead to a moderation in China’s growth and could mean a slight slowing in global growth,” said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
