Yen Advances for Second Day on Signs Global Recovery Slowing; Kiwi Weakens

The yen rose for a second day against the euro and the dollar as signs the global recovery is slowing boosted demand for Japan’s currency as a refuge.

The yen advanced versus 14 of its 16 major counterparts before reports that economists said will show U.S. gross domestic product grew at a slower pace and confidence at European manufacturers stayed negative. New Zealand’s dollar fell for a third day after the central bank said deteriorating growth will slow the pace of future interest-rate increases. South Korea’s won dropped on concern exports will falter and the central bank may intervene to prevent gains in the currency.

“As economies in the U.S. and Europe lose momentum, the negative impact may reach other regions,” said Soichiro Mori, a manager at FXOnline Japan Co., a margin-trading company based in Tokyo. “Growth-sensitive currencies may drop against the yen.”

The yen strengthened to 113.55 per euro as of 6:52 a.m. in London from 113.66 in New York yesterday when it advanced 0.5 percent. Japan’s currency climbed to 87.25 per dollar from 87.47, after rising to 86.27 on July 16, the strongest since Dec. 1. The dollar was at $1.3014 per euro from $1.2995.

U.S. economic growth slowed to an annual 2.5 percent pace last quarter, from 2.7 percent the previous three months, according to a Bloomberg survey before tomorrow’s Commerce Department report. Manufacturing confidence in the euro zone was minus 5 in July, according to a separate Bloomberg survey before the European Commission in Brussels releases the data today.

‘Further Evidence’

“Further evidence of a cooling in U.S. growth momentum is weighing on market sentiment,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Against this backdrop, ‘safe haven’ currencies such as the yen and the dollar are tending to outperform against ‘growth sensitive’ currencies like the Australian, New Zealand and Canadian dollars.”

The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders.

Japan’s currency has advanced 10 percent this year against its developed-world counterparts, the biggest gainer of the group, according to Bloomberg Correlation-Weighted Currency Indices. The euro has dropped 7.7 percent, and the dollar has strengthened 2.7 percent.

‘More Dovish’

New Zealand’s dollar fell against all the major currencies after central bank Governor Alan Bollard raised borrowing costs for a second month and said the “pace and extent” of future increases would be more moderate than earlier projected.

“The statement is more dovish than in June and the market largely expected it to be unchanged,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp., Australia’s second-largest lender. “The kiwi dollar is being sold on that. We’re likely to see further hikes in the next few meetings before consideration of a pause.”

The currency’s recent gains are “inconsistent with the softening in New Zealand’s economic outlook and moderation in our export commodity prices,” Bollard said today in Wellington after increasing rates.

New Zealand posted a trade surplus of NZ$276 million ($200 million) for June, Statistics New Zealand said today, less than the NZ$368 million forecast in a Bloomberg survey.

The benchmark rate of 3 percent in New Zealand compares to 4.5 percent for Australia and levels of 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

New Zealand’s dollar fell 0.4 percent to 72.44 U.S. cents, and declined 0.7 percent to 63.16 yen.

Won Falls

The won dropped for a second day after the Bank of Korea said its index measuring manufacturer’s expectations for next month fell to 102 for August, from 104 for July.

“Concern the recovery is slowing is bringing risk aversion back,” said Seo Jeong Hun, chief economist at Korea Exchange Bank in Seoul. “The possibility of intervention also exists, but exporters may try to repatriate income so won declines should be limited.”

The won slipped 0.1 percent to 1,185.40 per dollar. It rose to a five-week high of 1,181.33 on July 27 before retreating yesterday as traders said the central bank bought dollars to counter the won’s appreciation.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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