BLBG : Yen Rises to Two-Week High as Japan’s Growth Misses Estimates
Aug. 17 (Bloomberg) -- The yen rose to the highest level in more than two weeks against the euro after Japan’s economic growth missed estimates and U.S. regulators closed five lenders, boosting demand for the currency as a refuge.
Japan’s currency climbed the most against the Norwegian krone and Australian dollar as the MSCI World Index of stocks slumped 1.6 percent, prompting investors to reduce holdings of higher-yielding securities. The pound posted its biggest loss in almost 11 weeks against the dollar after a report showed British home sellers lowered asking prices by the most in eight months.
“We’re certainly seeing foreign-exchange markets following stocks,” said Paul Bednarczyk, a currency strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “When stocks go down, people buy yen, with the idea that Japanese money comes home more rapidly.”
Japan’s currency strengthened to 133.07 per euro as of 6:52 a.m. in New York, from 134.84 on Aug. 14, after earlier gaining to 133.19, the highest level since July 29. The yen advanced to 94.67 per dollar from 94.94. It reached the strongest level since Aug. 4.
Japan’s gross domestic product expanded an annualized 3.7 percent in the second quarter, following an 11.7 percent decline in the three months ended March 31, the Cabinet Office reported in Tokyo today. Analysts surveyed by Bloomberg News forecast that the economy would grow by 3.9 percent.
The yen may trade at 100.75 per dollar and 136 per euro in three months, Bednarczyk said. The Japanese currency will end the year at 98 per dollar and 137 per euro, according to the median of analysts’ forecasts compiled by Bloomberg.
The Japanese currency traded at 15.2658 against the Norwegian krone, from 15.6050 at the end of last week. It climbed to 77.27 versus Australia’s dollar, from 79.06. It was at 154.20 per pound, from 157.05.
Stocks Fall
The MSCI Asia Pacific Index of regional shares declined 3.3 percent and Europe’s Dow Jones Euro Stoxx 600 slid as much as 2.2 percent to the lowest level since July 31. Futures on the Standard & Poor’s 500 Index slumped 2 percent.
The yen also rose after regulators closed Colonial BancGroup Inc.’s banking operations and shut two companies in Arizona, one in Las Vegas and one in Pittsburgh, after markets closed last week. That brought the number of failed banks this year to 77.
The collapse of Montgomery, Alabama-based Colonial followed a Florida expansion that left the lender with more than $1.7 billion in soured real estate loans. Branches and deposits of Colonial Bank were turned over to BB&T Corp. in a deal brokered by the Federal Deposit Insurance Corp., the regulator said in a statement on Aug. 14.
‘Stocks Gone too Far’
“Over the next few days, the question as to whether the recovery of the stock markets may not have gone far too far already while a rapid recovery of the global economy is far from certain will put pressure on high yielders,” analysts led by Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt, wrote in a client note today.
More than 100 of the world’s biggest banks, insurers and securities firms have incurred $1.6 trillion in asset writedowns and credit losses since the beginning of 2007, according to data compiled by Bloomberg.
The pound declined after Rightmove Plc, the owner of the U.K.’s biggest residential property Web site, said the average cost of a U.K. home slipped 2.2 percent in August, after gaining 0.6 percent in July, the biggest drop since December.
“There are fears that the markets are overestimating the strength of the global economic recovery,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “We suspect some easing in risk appetite will help support safe-haven currencies like the yen and the dollar.”
King and Recession
Bank of England Governor Mervyn King said on Aug. 12 the world remains in “deep recession” and that banks may need to raise more capital to rebuild their balance sheets. Policy makers this month voted to add 50 billion pounds ($82 billion) of newly printed money to a bond-buying program to cement Britain’s recovery from the worst recession in a generation.
The pound fell to $1.6281 from $1.6543, after losing as much as 1.6 percent, the most since June 3. The euro dropped to $1.4062 from $1.4203. It advanced to 86.37 British pence from 85.84 pence.
The pound’s biggest five-month rally in 24 years may be ending as the central bank floods the economy with cash and slowing inflation precludes higher interest rates to lure investors. The U.K. currency slumped 2.6 percent since Aug. 5 to last week’s $1.6543 close, after soaring 23.5 percent from March 10, the sharpest increase since 1985. It reversed gains as some investors pared bets U.K. assets would rise as the worst financial crisis in six decades eased.
Losses in the euro may be limited by speculation a German report tomorrow will show investor confidence rose, giving the European Central Bank less reason to cut interest rates.
ECB council member Axel Weber said the German economy may shrink at a slower pace this year than the 6 percent the Bundesbank is forecasting, Sueddeutsche Zeitung reported yesterday, citing an interview. The ECB has cut its benchmark rate to 1 percent and began buying as much as 60 billion euros ($84.5 billion) of covered bonds to stimulate the economy.
“Improving sentiment in Germany would be a plus for the European economy,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Interest rates may stay relatively high, making the euro easy to buy.”
The ZEW Center for European Economic Research in Mannheim will say its index of investor and analyst expectations, which aims to predict economic developments six months ahead, rose to 45.0 in August from 39.5 in July, a Bloomberg News survey of economists showed.
Still, the common currency may decline as much as 8 percent against the dollar over the next three months as investors become more wary of taking risk with their assets, according to UBS AG, listed by Euromoney Institutional Investor Plc as the world’s second-biggest currency trader.
“We continue to call for a rise in risk aversion targeting euro-dollar at $1.30 over three months,” Gareth Berry, an analyst with UBS in London, wrote in a research note today.
