BLBG: Yen, Dollar Rise on Concerns Jobless Gains Signal Slow Recovery
By Yoshiaki Nohara and Theresa Barraclough
Nov. 5 (Bloomberg) -- The yen and the dollar rose against the euro as concerns the global economic recovery will falter drove down Asian stocks, boosting demand for the two currencies as a refuge.
The yen advanced against all 16 major counterparts as the Federal Reserve reiterated its pledge to keep interest rates near zero for an “extended period,” before a report tomorrow forecast to show the U.S. jobless rate climbed. The New Zealand dollar dropped after Reserve Bank Governor Alan Bollard said the nation’s recovery from the global recession will be slower than Australia’s and the statistics bureau reported that the jobless rate climbed to the highest level in more than nine years.
“Uncertainty about the economic recovery is weighing on stocks, fueling risk aversion,” said Takashi Kudo, director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “I expect the U.S. jobless rate to get worse. The bias is for yen and dollar buying.”
The yen rose to 134.09 per euro at 1:48 p.m. in Tokyo from 134.85 in New York yesterday. It climbed to 90.36 per dollar from 90.72. The dollar gained to $1.4839 per euro from $1.4861.
The Nikkei 225 Stock Average fell 1.3 percent and the MSCI Asia Pacific Index of regional shares dropped 0.8 percent. That prompted speculation investors are pulling out of so-called carry trades, in which they sell the currency of a nation with low interest rates to buy higher-yielding currencies.
Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3.5 percent in Australia and 2.5 percent in New Zealand.
Risk Aversion
The unemployment rate in the U.S. probably rose to 9.9 percent last month from 9.8 percent in September, according to the median estimate of economists in a Bloomberg News survey. U.S. employers eliminated 175,000 jobs in October after a reduction of 263,000 in September, a separate Bloomberg survey showed. The Labor Department report is due tomorrow.
New Zealand’s jobless rate increased to 6.5 percent from 6 percent in the previous three months, Statistics New Zealand said in Wellington today. The median estimate of seven economists surveyed by Bloomberg News was for 6.4 percent.
The yen also gained on speculation exporters purchased the Japanese currency.
“The weak kiwi data is reversing risk trades,” said Masafumi Yamamoto, Tokyo-based chief foreign-exchange strategist at Barclays Bank Plc. “Exporters should be happy to see the 91 yen level, which is capping any upside to the dollar-yen rate.”
ECB Rates
Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.
New Zealand’s dollar fell to 65.11 yen today from 65.70 yesterday in New York. It dropped 0.6 percent to 71.97 U.S. cents.
Losses in the euro may be limited on speculation the European Central Bank today will signal it’s moving closer to withdrawing emergency stimulus measures. Policy makers meeting in Frankfurt will also keep the benchmark interest rate at a record low of 1 percent, according to all economists in a Bloomberg News survey.
Council member Axel Weber said last week commercial banks need to prepare for a “gradual withdrawal” of the ECB’s liquidity, and signaled its 12-month loans in December may be the last. Other policy makers have expressed concern that the economy remains too fragile to remove stimulus measures, and may want more evidence of a recovery before committing to action.
Bank of England
“Unwinding of ECB extraordinary measure may be faster than in the U.S. or Japan, so the euro will remain relatively strong,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “Now is a good opportunity to long the euro.” A long position is a bet an asset will rise.
The Federal Reserve yesterday repeated its intention to keep interest rates “exceptionally low” for “an extended period” as long as inflation expectations are stable and unemployment fails to decline. Policy makers held the target rate for overnight lending between banks at zero to 0.25 percent.
The pound dropped against 11 of its 16 major counterparts on speculation the Bank of England today will expand its bond- buying plan as policy makers try to shore up Britain’s banking system.
The central bank is forecast to expand its asset-purchase program to 225 billion pounds ($371 billion) from 175 billion pounds as well as keeping the benchmark interest rate unchanged at 0.5 percent, according to economists surveyed by Bloomberg News. That follows Prime Minister Gordon Brown’s pledge this week to spend almost 40 billion pounds in a second bailout of Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc.
“The U.K. needs to take care of its troubled financial sector,” which is negative for the pound, said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest lender. “That industry plays a dominant role in the nation’s economy.”
