The yen rose toward a seven-week high against the euro on signs the global economic recovery is slowing, supporting demand for Japan’s currency as a refuge.
The yen headed for a weekly gain versus 15 of 16 major counterparts before reports next week that may show U.S. home sales fell, Japanese export growth slowed and German business sentiment weakened. The euro traded near the lowest since July versus the Swiss franc before French President Nicholas Sarkozy meets Finance Minister Christine Lagarde today to prepare for next month’s budget. Australia’s dollar was set for a second weekly loss before a national election tomorrow.
“Renewed worries about the global outlook are spurring risk aversion,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This should continue to support ‘safe haven’ currencies like the yen, the Swiss franc and to a lesser extent the dollar.”
Japan’s currency rose to 109.27 per euro at 6:40 a.m. in London from 109.49 in New York yesterday, after reaching 109.02, the highest since July 1. The yen was at 85.31 per dollar from 85.39. The euro traded at 1.3225 francs from 1.3233 francs yesterday, after touching 1.3187 francs, the weakest since July 1. Europe’s common currency slipped to $1.2809 from $1.2823.
Asian Stocks Tumble
South Korea’s won led Asian currencies lower as the MSCI Asia Pacific Index of regional shares slid 1.3 percent and Japan’s Nikkei 225 Stock Average lost 1.8 percent. The won slipped 0.6 percent to 1,179.75 per dollar.
Purchases of existing U.S. homes fell 13.9 percent in July, after declining 5.1 percent in May, economists said before the Aug. 24 report. Japan’s export growth slowed to 21.8 percent in July from 27.7 percent in June, and the Ifo institute’s German business climate index slid to 105.5 in August from 106.2 the previous month, separate surveys showed before the Aug. 25 data.
“What is happening to market sentiment at the moment is that any negative data is seeing risk aversion spike,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “The thing that is helping to drive yen strength is this ongoing risk aversion.”
The yen has gained 14 percent this year, the best performance among 10 developed-world currencies, Bloomberg Correlation-Weighted Currency Indexes show. The currency typically strengthens in times of financial and economic turmoil because Japan’s trade surplus frees the nation from dependence on overseas capital.
Japanese Policy Makers
Gains in the yen were tempered on speculation the Japanese government will take steps to counter this week’s 1 percent appreciation versus the dollar.
The probability the Bank of Japan will intervene in currency markets is at a six-year high of 51 percent, according to a Morgan Stanley model that uses factors such as net positions in Japan’s currency. Japan hasn’t intervened to weaken its currency since 2004.
“The current strength of yen and its misalignment from fundamentals is unlikely to be ignored indefinitely,” Stephen Hull, London-based head of global currency strategy at Morgan Stanley, wrote in a note dated yesterday.
The yen’s climb to a 15-year high of 84.73 against the dollar on Aug. 11 has stoked concern that exporters’ earnings could weaken and deflation might deepen. Finance Minister Yoshihiko Noda said today he will meet with Prime Minister Naoto Kan next week to discuss the economy and currency.
The euro was poised for a second weekly loss versus the franc as Sarkozy readies France’s 2011 budget along with a bill to increase the retirement age.
Lagarde and Prime Minister Francois Fillon, who will also attend the meeting, have emphasized the need for spending cuts since June. The increase in France’s government debt since the financial crisis has been “significant,” Moody’s Investors Service wrote in a quarterly report this week.
“Fiscal austerity measures are likely to hurt the economic rebound,” said Toshihiko Sakai, head of trading for currencies and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest financial group by market value. “The euro is a sell.”
Sarkozy has promised to cut France’s deficit to 6 percent of output next year and 3 percent by 2013 from about 8 percent this year. France’s finance ministry is working on the hypothesis that the country’s economic growth in 2011 will be about 2 percent, daily Le Figaro reported, without citing anyone.
That compares with the government’s current forecast for growth of 2.5 percent.
Australia’s dollar approached a four-week low versus the yen as polls signaled tomorrow’s election may result in a hung parliament.
“Two factors have made the election more interesting --the threat of a hung parliament and significant differences across the major and minority parties on a mining sector tax,” David Forrester, a currency economist in Singapore at Barclays Capital, wrote in a note to clients. “We favor positioning for a weaker Aussie versus other commodity currencies.”
The Australian currency fell to 89.06 U.S. cents from 89.27 cents in New York yesterday, heading for a 0.3 percent loss this week. The currency declined to 75.97 yen, after sliding to 75.70 yen, the lowest since July 22.
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