The yen rose, heading for weekly advances against the euro and dollar, on speculation Group of 20 leaders will agree to tighten rules on investment, boosting demand for so-called safe-haven currencies. The Japanese currency gained versus all 16 major counterparts as U.S. officials said they supported a plan to strengthen capital requirements and force banks to tie compensation more closely to risk. The pound was set for a third weekly loss against the euro after the Newcastle Journal reported that Bank of England Governor Mervyn King said the currency’s drop was “very helpful” in rebalancing the economy. “Worries the G-20 may impose stricter financial market regulations are causing risk aversion,” said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “There’s safe- haven buying of the dollar and the yen.” The yen climbed to 133.10 per euro as of 1:26 p.m. in Tokyo from 133.86 in New York yesterday, after earlier reaching 132.53, the highest level since Sept. 16. It rose to 90.77 per dollar from 91.27. The dollar was at $1.4663 per euro from $1.4666 yesterday in New York and from $1.4712 a week earlier. The greenback is set for a 0.3 percent weekly gain against Europe’s single currency, the first advance since the five days ending Sept. 4. G-20 leaders have signaled they’re ready to clamp down on banker pay as they seek to curb behaviors that helped trigger the global financial crisis. The collapse of the U.S. property market in 2007 led to the global recession and resulted in $1.62 trillion of writedowns and credit losses at banks and other financial institutions, according to data compiled by Bloomberg. Excessive ‘Games’ “There will be broad agreement around many elements of a compensation package,” Michael Froman, U.S. President Barack Obama’s liaison to the G-20, told Bloomberg Television. Treasury Secretary Timothy Geithner promised “a far-reaching set of standards” that would take effect immediately. The G-20 kicked off a two-day meeting yesterday in Pittsburgh. The dollar and yen, commonly used as funding currencies for higher-yielding assets, rose after new Japanese Prime Minister Yukio Hatoyama, speaking before the United Nations General Assembly, pledged cooperation with other G-20 leaders in reducing income disparity and “excessive money-making games.” Federal Reserve Governor Kevin Warsh said the U.S. central bank may need to be as aggressive in reversing money-easing actions as policy makers were in starting them. “If ‘whatever it takes’ was appropriate to arrest the panic, the refrain might turn out to be equally necessary at a stage during the recovery to ensure the Federal Reserve’s institutional credibility,” Warsh said in an opinion piece posted late yesterday on the Wall Street Journal’s Web site. Policy Pullback The Federal Reserve and U.S. Treasury said yesterday they’re scaling back emergency programs aimed at combating the financial crisis, reducing support for firms that now have an easier time getting funding. European policy makers are also moving to withdraw stimulus. The European Central Bank said it will discontinue its 84-day U.S. dollar liquidity-providing operations with the Fed “given the limited demand and the improved conditions in funding markets.” The ECB will keep conducting seven-day dollar operations. “The announcements by these central banks triggered buy- backs of the dollar, which was used to finance investments on riskier assets,” said Fumio Mizutani, a currency analyst at currency-margin company ODL Japan Co. “We now need to carefully ascertain whether this action will affect dollar-carry investments.” In carry trades, investors borrow in a nation with low interest rates and invest where returns are higher. The risk in such trades is that currency market moves will erase profits. British Pound Benchmark interest rates are 2.5 percent in New Zealand and 3 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S, making investments in the South Pacific nations’ comparatively attractive. The pound reached the lowest level in more than five months against the euro as King’s comments spurred active selling of the Britain’s currency. “The pound was the star of all the currencies that fell today,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. The pound declined to as weak as $1.5918 today, the lowest since June 8, from $1.6059 yesterday in New York. The U.K. currency dropped to 91.93 pence per euro, reaching the weakest level since April 1. Repatriation Japan’s currency is set for a weekly advance versus 14 of its 16 major counterparts on prospects the nation’s exporters will take advantage of an April 1 rule change that waives taxes on repatriated profits. Under previous laws, companies had to pay a combined 40 percent tax on overseas earnings. The first half of Japan’s fiscal year ends Sept. 30. “Yen repatriation by Japanese firms is likely to continue today and next week,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The bias is for the yen to rise.” Export Slump Japanese exports fell 36 percent in August from a year earlier, the Finance Ministry said yesterday, an 11th-straight decline. The drop was exacerbated by the yen’s 17 percent surge against the dollar in the past year, making Japanese goods more expensive abroad and lowering the value of repatriated earnings. “We’re affected by exchange rates, there’s no doubt about it,” said Paul Nolasco, a Tokyo-based spokesman at Toyota, which based its earnings estimates on the assumption that the yen will trade at an average of 92 to the dollar in the next six months. The automaker forecasts a 450 billion yen ($5 billion) net loss for the year ending March 2010. Large manufacturers expected the yen to trade at an average of 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.

Source