BLBG: Yen, Dollar Weaken on Signs of Economic Recovery, Stock Gains
By Lukanyo Mnyanda and Yasuhiko Seki
Dec. 3 (Bloomberg) -- The yen weakened for a third day against the euro and the dollar declined as signs the global economy is recovering boosted demand for higher-yielding assets.
Japan’s currency slid most against the South African rand and Australian dollar as the MSCI World Index of stocks gained for a fourth day before a U.S. service-industries report forecast by economists to show a third month of expansion. The euro rose on speculation the European Central Bank will announce plans to scale back emergency lending today. The pound gained as U.K. services grew at close to the fastest pace in two years.
“It’s primarily risk appetite driving the markets,” said Adam Cole, London-based global head of currency strategy at Royal Bank of Canada. “Stocks are trading better and that’s having a knock-on effect on foreign exchange”
The yen depreciated to 132.87 per euro as of 10:27 a.m. in London, from 131.46 yesterday in New York, and 132.88 earlier, the weakest level since Nov. 24. Japan’s currency weakened to 87.82 per dollar from 87.38, after sliding to 87.92, the weakest level since Nov. 25. The yen advanced to 84.83 to the dollar on Nov. 27, the highest since July 1995. The euro was at $1.5127 today, from $1.5044.
The MSCI World Index climbed 0.7 percent, Europe’s Dow Jones Stoxx 600 Index gained 0.8 percent and futures on the Standard & Poor’s 500 Index advanced 0.6 percent as evidence of a global economic recovery stoked so-called risk appetite. The Nikkei 225 Stock Average rose 3.8 percent, the most since May 7.
U.S. Economy
The U.S. economy, the world’s biggest, improved “modestly” from October to mid-November as consumer spending rose, the Federal Reserve said in its Beige Book report yesterday. The Institute for Supply Management’s index of non- manufacturing businesses rose to 51.5 in November from 50.6 in October, according to a Bloomberg survey of 71 economists before today’s report due at 10 a.m. New York time.
Higher-yielding currencies gained as Bank of America Corp., the nation’s biggest lender, said it will repay $45 billion of U.S. government bailout funds received via the Troubled Asset Relief Program using $26.2 billion of “excess liquidity” and $18.8 billion from the sale of securities.
“The Bank of America news has also helped sentiment,” said Elisabeth Andreew, chief foreign-currency strategist at Nordea Bank in Copenhagen. “Stock markets are higher and the riskier currencies are stronger.”
The South African rand advanced for a fourth day against the yen, gaining 1 percent to 12.0280 yen. It rallied to the strongest level since Oct. 16 versus the dollar, climbing 0.4 percent to 7.3040. The Australian dollar strengthened 1.1 percent to 81.70 yen and rose 0.5 percent to 92.98 U.S. cents.
‘Lead the Exit’
The euro strengthened against 10 of its 16 major counterparts before today’s ECB decision. Central bank President Jean-Claude Trichet will say its third offer of 12-month loans to banks on Dec. 15 will be the last and signal a reduction in other lending operations, according to economists surveyed by Bloomberg. ECB officials will leave the benchmark rate at 1 percent, according to all 54 economists polled.
“There is a strong belief the ECB will lead the exit of credit-easing among the developed countries,” said Kazumasa Yamaoka, a senior 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 the countries’ currencies popular for funding so-called carry trades. In such trades, investors buy higher-yielding assets with money borrowed in nations with low interest rates. The risk is that currency market moves will erase their profit.
Japan Talks
Japan’s currency also weakened after Vice Finance Minister Rintaro Tamaki met with U.S. Treasury officials this week in Washington, spurring speculation the two nations are discussing how to tackle the yen’s strength. Tamaki is head of international affairs, including currency 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 BOJ should re-think its “fundamentalist” stance on combating inflation while neglecting measures to stimulate the economy.
‘Hung Parliament’
The pound gained 0.2 percent to $1.6657, after advancing as much as 0.6 percent to $1.6722, the strongest level since Nov. 26, as an index of service industries showed expansion. The pound has gained 14 percent this year, rebounding from a 26 percent slump in 2008, amid investor optimism that the British economy is emerging from its worst recession since World War II.
An index based on a survey of about 700 service companies was at 56.6 last month, compared with 56.9 in the previous month, the Chartered Institute of Purchasing and Supply and Markit Economics said today in London. A reading above 50 indicates expansion. The October measurement was the highest since August 2007.
The U.K. still faces the risk of a sterling crisis and may need aid from the International Monetary Fund if no single political party wins control of Parliament at the next election, Conservative lawmaker Mark Field said.
“The more recent prospect of a hung parliament” risks “tipping sterling and the gilt market into a catastrophic state,” Field said at an event in London yesterday. He is the opposition lawmaker representing London’s finance district, known as the City.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
