Yen Rises to 2010 High Against Dollar on Global Slowdown Signs
The yen appreciated to 86.29 per dollar
Qilai Shen/Bloomberg
Federal Reserve Bank of St. Louis president James Bullard.
Federal Reserve Bank of St. Louis president James Bullard. Photographer: Qilai Shen/Bloomberg
The yen rose to its strongest level this year against the dollar before a U.S. report on gross domestic product as signs the global recovery is losing momentum boosted demand for a refuge.
Japan’s currency advanced against all of its major counterparts after Federal Reserve Bank of St. Louis President James Bullard said yesterday the U.S. is moving closer to Japanese-style deflation. The euro pared the biggest monthly gain versus the dollar since May 2009 as the currency failed to break through resistance, triggering month-end selling by investors, according to Danske Bank A/S and Societe Generale SA.
“We are moving into a more risk-averse environment globally,” said Simon Derrick, chief foreign-exchange strategist in London at Bank of New York Mellon Corp. “There are a lot of deflationary stories out there at the moment, and we see people turning toward the relative safe-haven currencies like the yen.”
The yen climbed 0.4 percent to 86.41 per dollar at 8:02 a.m. in New York, from 86.79 yesterday, after reaching 86.16, the strongest level since Nov. 30. The yen has advanced 2.4 percent against the dollar this month. Japan’s currency appreciated 0.8 percent to 112.63 per euro, from 113.51. The dollar advanced 0.4 percent to $1.3034 per euro, from $1.3079, paring its monthly decline to 6.1 percent.
The euro failed to rally past $1.3125, the 38.2 percent Fibonacci retracement of the drop from $1.5144 on November 2009 to $1.1877 last month, according to John Hydeskov, senior currency analyst at Danske Bank in Copenhagen. The stall in the euro convinced some investors that the currency’s strength was fading, Hydeskov said.
‘End-of-Month’
“There is the end-of-month effect,” said David Deddouche, an analyst at Societe Generale in Paris. “People tend to take profit where they can.”
U.S. economic growth slowed to a 2.6 percent annual rate last quarter, from 2.7 percent in the first three months of the year, according to the median forecast in a Bloomberg News survey before today’s Commerce Department report.
Japan’s factory output slid 1.5 percent in June from the previous month, when it gained 0.1 percent, the government said today. The jobless rate rose to 5.3 percent, the highest level since November, the statistics bureau said.
The Fed should resume purchases of Treasury securities if the economy slows and prices fall, Bullard said in a research paper released yesterday. Fed Chairman Ben S. Bernanke said on July 21 that central bankers “remain prepared” to act as needed to aid growth even as they get ready to raise interest rates eventually.
Deflation Risk
“The comments from Bullard and from Bernanke last week do indicate an increasing risk that there is some shift in tone to the FOMC statement coming up on Aug. 10,” Derek Halpenny, European head of foreign exchange at Bank of Tokyo-Mitsubishi UFJ in London, wrote in a note to clients today. That is “the clear driver of dollar weakness to date, and this will frustrate government officials in Tokyo who appear to be becoming increasingly concerned over the appreciation of the yen,” according to Halpenny.
Interest-rate futures on the CME Group Inc. exchange show a 57 percent chance the Fed will keep the target lending rate unchanged through March, up from 44 percent odds a month ago.
Japan’s currency has advanced 11 percent this year in the biggest gain among developed-world counterparts, according to Bloomberg Correlation-Weighted Currency Indices. The euro has dropped 7.7 percent, while the dollar is up 2.2 percent.
Japan’s Trade Surplus
The yen typically strengthens in times of financial turmoil because Japan’s trade surplus means the nation doesn’t have to rely on overseas lenders.
Lawmakers from the ruling Democratic Party of Japan pressed Prime Minister Naoto Kan today to shift the focus of his economic policy to growth from fiscal restraint and urge the central bank to do more to tackle deflation.
The Australian and New Zealand dollars fell against the yen before a report on Aug. 1 that economists said will show manufacturing growth slowed for a third month in China.
“The Chinese PMI data is out Sunday with rumors of a sharply weaker number,” said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada, the nation’s biggest lender. “If that is realized, I would expect both Aussie and kiwi to open on Monday a lot weaker.”
The Aussie decreased 0.5 percent to 77.75 yen, while New Zealand’s dollar slid 0.6 percent to 62.44 yen.
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
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