Yen Advances on Concern BOJ Steps Won't Be Enough to Curb Gains

The yen rose against all 16 of its most-traded counterparts on speculation the Bank of Japan’s decision to increase credit-easing measures won’t be enough to weaken it from near a 15-year high.

The Japanese currency headed for a fourth straight monthly advance versus the dollar even as Prime Minister Naoto Kan said the nation is preparing a 920 billion yen ($10.8 billion) stimulus plan and the central bank added 10 trillion yen in liquidity injections. The dollar and Swiss franc rose versus most major counterparts as U.S. stocks dropped, fueling demand for safer assets.

“There’s a growing perception that there’s relatively little that the Japanese authorities can do at this point to reverse strength in the yen,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “There is demand for the safe-haven currencies.”

The yen gained 0.7 percent to 84.62 per dollar at 5 p.m. in New York, from 85.22 on Aug. 27. It was poised for a monthly rise of 2.2 percent, which would cap its longest winning streak against the greenback since the five months ended Jan. 30.

Japan’s currency climbed 1.5 percent to 107.14 yen per euro, from 108.72. The dollar strengthened 0.8 percent to $1.2663 per euro, from $1.2763, headed for a monthly advance.

U.S. stocks dropped, with the Standard & Poor’s 500 Index tumbling 1.5 percent after adding 1.7 percent on Aug. 27.

The Swiss franc appreciated 1 percent to 1.2993 per euro, trading near a record high of 1.2972 it reached on Aug. 25. The currency is poised to gain against 15 of its 16 main counterparts for the month, lagging behind only the yen.

‘Risk Aversion Persists’

“The Swiss franc and Japanese yen remain the strongest net bought amongst the G-10 currencies as risk aversion persists,” Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon, wrote in a note to clients, referring to developed-world currencies.

Cumulative inflows into the yen this week totaled 1 1/2 times the average amount compared with the previous year, and inflows into francs totaled two times the average amount, according to iFlow data from BNY Mellon, the world’s largest custodial bank, with more than $20 trillion in assets under administration.

Mexican Peso

Mexico’s peso fell against most major currencies amid concern the economic recovery of the U.S., the nation’s biggest trading partner, is faltering. The currency dropped 1.1 percent to 13.1495 per dollar. Mexico ships about 80 percent of its exports to the U.S.

American consumer purchases increased 0.4 percent in July, the most since March, after being little change the prior month, Commerce Department figures showed today in Washington. Incomes increased 0.2 percent, less than projected.

Federal Reserve Chairman Ben S. Bernanke said last week the U.S. central bank “will do all that it can” to ensure a continuation of the economic recovery and that further securities purchases may be warranted if growth slows. The Fed decided this month to buy Treasuries with principal payments from its mortgage holdings to keep its portfolio from shrinking as the mortgage bonds mature.

The economy grew at a 1.6 percent annual rate in the second quarter, less than previously estimated, according to revised figures from the Commerce Department released Aug. 27.

The Bank of Japan said at an emergency meeting it will boost the amount of funds in a lending facility to a total of 30 trillion yen while keeping its benchmark overnight lending rate at 0.1 percent.

15-Year High

Pressure on the bank has been mounting since it held the target lending rate at 0.1 percent and refrained from expanding credit measures at an Aug. 9-10 meeting. The yen reached 83.60 per dollar on Aug. 24, the strongest level since June 1995.

The Japanese currency has climbed 15 percent this year, the biggest increase among its developed-world counterparts, according to Bloomberg Correlation-Weighted Currency Indices. The euro was the worst performer, falling 9.4 percent. The dollar rose 3.9 percent.

Bank of Japan Governor Masaaki Shirakawa said a deceleration in domestic consumer prices and slow growth and weak unemployment numbers in the U.S. are creating uncertainties in the market.

Key Trend Line

The yen may trade in a range of 83.60 per dollar to 86.40 per dollar this week after breaking through a key trend line last week, according to a note by Niall O’Connor, a technical analyst at JPMorgan Chase & Co. in New York. The line begins at the weak point on June 4 of 92.89 per dollar and extends through the weak point on July 28 of 88.12 per dollar. The yen moved beyond the line on Aug. 27, touching 85.46 per dollar.

“The net result is still toward lower prices, to test 1995 lows,” in dollar-yen, said in an interview. “The very short- term period still argues for a range first.”

He said the yen may gain versus the dollar after this week.

The yen tends to gain in times of economic or financial turmoil as Japan’s current-account surplus means it doesn’t need foreign capital. A stronger domestic currency hurts the overseas competitiveness of Japanese exporters and reduces the value of earnings from other countries.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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