Yen Gains as Australia's Trade Surplus Shrinks, U.S. Stock Futures Decline

The yen rose, reversing losses against the euro, after Australia’s trade surplus narrowed more than economists forecast and U.S. stock futures declined.

Japan’s currency rose versus all of its major counterparts on speculation the nation’s companies are bringing home overseas earnings before the first half of the fiscal ends this month. Australia’s dollar weakened after the nation’s Bureau of Statistics also said exports fell for the first time since February. The euro snapped a two-day gain versus the dollar on speculation the European Central Bank will extend emergency lending measures at a policy meeting today.

“As markets flip from risk-on to risk-off almost on a daily basis, the question for today is how sustainable the rally in risk trades will prove to be against the background of so much policy and growth uncertainty,” said Mitul Kotecha, Hong Kong-based global head of foreign-exchange strategy at Credit Agricole CIB. “We still maintain that risk trades remain a sell on rallies over coming weeks.”

The yen advanced to 107.70 per euro as of 6:50 a.m. in London from 108.15 in New York yesterday. Japan’s currency climbed to 84.21 per dollar from 84.44 yesterday when it reached 83.67, the highest since Aug. 24. The euro dropped to $1.2792 from $1.2808. Australia’s dollar fell 0.6 percent to 90.66 U.S. cents, and slid 0.8 percent to 76.34 yen.

Futures on the Standard & Poor’s 500 Index slipped 0.4 percent, and the Nikkei 225 Stock Average trimmed its advance to 1.3 percent from as much as 1.8 percent.

Australia, U.S. Data

Australia’s surplus shrank to A$1.89 billion ($1.7 billion) in July from a revised A$3.44 billion in June, the Bureau of Statistics said in Sydney today. The median estimate in a Bloomberg News survey of 22 economists was for a A$3.1 billion surplus. Exports fell 4 percent to A$25.4 billion.

The trade surplus “was clearly down and was almost half of what the market was expecting,” said Sue Trinh, a senior currency strategist in Hong Kong at RBC Capital Markets, a unit of Canada’s largest lender. “The Aussie dollar is down.”

Adding to signs that the global economy is losing traction, a U.S. report tomorrow will show employers trimmed 100,000 jobs last month after eliminating 131,000 in July, a Bloomberg survey forecast. An ADP Employer Services report yesterday showed American companies cut 10,000 workers in August.

“There’s a large volume of evidence to suggest that the U.S. economy is actually going to stall,” said Robert Rennie, head of currency research at Westpac Banking Corp. in Sydney.

September Volatility

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.

Japan’s currency rose toward a one-week high versus the dollar on prospects Japanese exporters and investors are converting foreign income into yen.

“September is likely to be very volatile, given Japan’s fiscal half-year-end,” said Yoh Nihei, a Tokyo-based trading group manager at Tokai Tokyo Securities Co. “Japanese firms will probably repatriate the yen.”

The country’s large manufacturers expected the yen to average 90.18 per dollar in the year ending March 2011, the Bank of Japan’s Tankan survey released on July 1 showed.

Japanese investors increased holdings of foreign bonds by the least in three months, government data showed today. They purchased 70.8 billion yen ($840 million) more foreign debt than they sold in the week ended Aug. 27, the lowest amount since May 7, according to Finance Ministry data.

ECB Meeting

The euro fell for the first time in three days versus the dollar and declined versus the yen before the European Central Bank holds a regular policy-setting meeting today in Frankfurt.

ECB policy makers are likely to extend emergency lending measures for banks into 2011, economists said. The ECB’s 22- member Governing Council will also leave the benchmark interest rate at a record low of 1 percent, according to all 57 economists in a Bloomberg News survey. Policy makers have so far committed to lend banks unlimited cash at the benchmark rate until at least Oct. 12.

ECB council member Axel Weber said in an Aug. 19 interview that the central bank should help banks through end-of-year liquidity tensions before determining early next year when to withdraw emergency measures.

“Given challenges that the euro-zone economy has to face in the process of austerity measures, the ECB can’t easily normalize the policy rate, which will keep downside pressure on the shared currency,” said Takeshi Makita, a senior economist in Tokyo at Japan Research Institute td., a unit of Sumitomo Mitsui Financial Group Inc.

----With assistance from Yoshiaki Nohara in Tokyo. Editors: Garfield Reynolds, Nate Hosoda.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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