BLBG: Yen, Dollar Weaken on Signs of Economic Recovery, Stock Gains
By Yasuhiko Seki and Ron Harui
Dec. 3 (Bloomberg) -- The yen weakened for a third day against the euro and the dollar fell as signs the global economy is recovering boosted demand for riskier assets.
Japan’s currency slid against all of its 16 major counterparts before reports forecast to show European retail sales fell at a slower pace and U.S. service industries expanded. The euro climbed amid speculation the European Central Bank will announce plans to scale back emergency lending while keeping borrowing costs low at today’s meeting in Frankfurt.
“With the global economy recovering, risk trades will weigh on the funding currencies” such as the yen and the dollar, said Soichiro Mori, manager of foreign-exchange promotion at FXOnline Japan Co., a margin-trading company. “Higher-yielding currencies will benefit from the liquidity-driven play.”
The yen declined to 132.49 per euro as of 1:43 p.m. in Tokyo from 131.46 yesterday in New York, after earlier dropping to 132.68, the lowest level since Nov. 25. Japan’s currency fell to 87.81 per dollar from 87.38, after sliding to 87.92, also the weakest since Nov. 25. The currency had risen to 84.83 to the dollar on Nov. 27, the highest since July 1995. The dollar dropped to $1.5088 per euro from $1.5044.
The Japanese and U.S. currencies weakened as store revenue in the 16-nation euro region fell 2.4 percent in October after a 3.6 percent drop the previous month, according to a Bloomberg News survey of economists. The European Union’s statistics office releases the data today.
ISM Report
The Institute for Supply Management’s index of non- manufacturing businesses, which make up the largest part of the U.S. economy, rose to 51.5 in November from 50.6 in October, according to a separate Bloomberg survey before today’s report.
Futures on the Standard & Poor’s 500 Index rose 0.4 percent, the Nikkei 225 Stock Average advanced 3.3 percent and the MSCI Asia Pacific Index of regional shares climbed 1.3 percent today.
“The risk trade continues,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in an e-mail to Bloomberg today. “Till year-end, euro-dollar continues to be a main trade.”
The euro strengthened against 10 of its 16 major counterparts as economists surveyed by Bloomberg News predicted ECB President Jean-Claude Trichet will today say the bank’s third offer of 12-month loans to banks on Dec. 15 will be the last and may signal a reduction in other lending operations.
ECB officials will also leave the benchmark interest rate at 1 percent, according to all 54 economists in a Bloomberg News survey.
Leading the Exit
“There is a strong belief the ECB will lead the exit of credit-easing among the developed countries,” said Kazumasa Yamaoka, senior currency analyst in Tokyo at GCI Capital Co., a foreign-exchange margin service company. “This perception will support the euro against the dollar and the yen.”
Benchmark rates are 0.1 percent in Japan and as low as zero in the U.S., making their currencies popular for funding so- called carry trades. In carry trades, investors buy higher- yielding assets with amounts borrowed in nations with low interest rates. The risk in such trades is that currency market moves will erase profits.
Japan’s currency also weakened after Japanese Vice Finance Minister Rintaro Tamaki met with U.S. Treasury officials this week in Washington, spurring speculation that the two nations are discussing the yen’s strength. Tamaki is head of international affairs, including currency policy.
‘Laissez-Faire Policy’
“Japan is shifting away from a laissez-faire policy on the rising yen,” said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Ltd. “The possibility of actual intervention may strengthen if the yen reaches 83 per dollar.”
The government of Prime Minister Yukio Hatoyama should revise the Bank of Japan’s by-laws to give it a mandate to stabilize prices and expand employment, similar to that of the U.S. Federal Reserve, said Eishi Wakabayashi, a strategist who forecast the yen’s surge to an all-time high in April 1995.
Wakabayashi, head of Tokyo-based Wakabayashi FX Associates Co., said the central bank should re-think its “fundamentalist” stance on combating inflation while neglecting measures to stimulate the economy.
To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
