BLBG: Yen Drops as Signs of Recovery, Fujii Resignation Curb Demand
By Bo Nielsen and Ben Levisohn
Jan. 6 (Bloomberg) -- The yen fell against all of its most- traded counterparts as evidence of a global economic rebound encouraged demand for higher-yielding assets and Japan’s Finance Minister Hirohisa Fujii resigned.
The yen dropped against the dollar for the first time in three days as the extra yield on U.S. two-year notes relative to Japan’s debt increased. Australia’s dollar rose as metal prices advanced. The euro recovered after falling against the dollar on concern the European Union will avoid a bailout of Greece as the nation struggles to lower its budget deficit.
“The yen’s negative correlation with risky assets is reasserting itself,” said David Deddouche, a currency strategist at Societe Generale SA in Paris. “Japanese yields will likely remain low while those in the U.S. will rise, and that’s hurting the yen. We’re negative the yen.”
The yen weakened 0.7 percent to 92.32 per dollar at 8:18 a.m. in New York, from 91.71 yesterday. It slipped to 132.74 versus the euro, from 131.75. The euro traded at $1.4348, compared with $1.4365, after dropping earlier to $1.4284.
The difference in yield, or spread, between U.S. and Japanese 2-year notes widened 0.02 percentage point to 0.87 percentage point after narrowing during the previous two days. The spread was 0.98 percentage point at the beginning of the year, the widest level since August.
Yen ‘Downside’
“We continue to see the case building for the yen returning to its role as a funding currency to a degree not seen since 2007,” Greg Gibbs, a Sydney-based foreign-exchange strategist at Royal Bank of Scotland Group Plc, wrote in an e- mailed note.
U.S. companies eliminated 84,000 jobs in December after a reduction of a revised 145,000 positions in the previous month, Roseland, New Jersey-based ADP Employer Services reported today. The median forecast of 31 economists in a Bloomberg News survey was for a cut of 75,000 from a previously reported 169,000.
The ADP report includes only private employment and doesn’t take into account hiring by government agencies.
The Institute for Supply Management’s index of non- manufacturing businesses, which account for almost 90 percent of the U.S. economy, rose to 50.5 in December from 48.7 in the previous month, according to the median forecast of 67 economists in a Bloomberg News survey.
Japan’s Prime Minister Yukio Hatoyama named Deputy Premier Naoto Kan as the new finance minister, replacing Fujii, 77, an advocate of a stronger yen who resigned on health grounds.
Japan’s Shift
“Kan is likely to continue the shift from strong- to weak- yen policy,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. His appointment will “raise political and fiscal uncertainty,” he said.
The yen dropped 1 percent against the South Korean won and the Australian dollar.
Demand for Australia’s dollar increased as gold, the nation’s third-most-valuable raw-material export, rose 0.5 percent today.
Benchmark interest rates of 3.75 percent in Australia and 2.5 percent in New Zealand compare with 0.1 percent in Japan and as low as zero in the U.S.
The euro earlier weakened versus the dollar after Italy’s Il Sole 24 Ore newspaper cited the European Central Bank policy maker Juergen Stark as saying markets can’t assume other nations will rescue Greece. Stark, a member of the ECB’s executive board, said markets are “deluding themselves” if they think the EU will bail out Greece, according to Il Sole.
Greece’s plan to cut the European Union’s widest budget deficit, estimated at 12.7 percent of gross domestic product last year, will be scrutinized by EU officials in Athens today.
The euro fell 4.6 percent versus the dollar in December as Greece’s bonds plunged and concern mounted that fiscal problems would also engulf Spain, Ireland and other euro-region members.
There’s “fear that Greece will default and that other countries like Spain and Ireland will follow,” said Antje Praefcke, a currency analyst at Commerzbank AG in Frankfurt. “This means heightened uncertainty.”
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Ben Levisohn in New York at blevisohn@bloomberg.net
