Yen Reaches 15-Year High Versus Dollar as Slowdown Fuels Refuge Demand
Sept. 7 (Bloomberg) -- Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo, talks about the outlook for the Japanese economy, central bank monetary policy, and the yen. The Bank of Japan kept borrowing costs and the size of its liquidity injections unchanged, taking a pause in monetary stimulus to monitor the yen’s moves and U.S. economic data after expanding a credit program a week earlier. Kanno also discusses Democratic Party of Japan presidential election. He talks with Mark Barton on Bloomberg Television's "Global Connection." (Source: Bloomberg)
The yen rallied to a 15-year high against the U.S. dollar as slowing economic growth increased demand for refuge assets and Japanese officials signaled limited ability to halt the surge in the currency.
Japan’s currency strengthened against all 16 of its most- traded counterparts as central bankers in Japan and Australia indicated that slower U.S. economic growth limits their policy options. The euro slid the most in more than two weeks against the dollar after the Wall Street Journal said European stress tests for banks understated some holdings of sovereign debt in the wake of Greece’s budget crisis. The Swiss franc reached its strongest level since the euro was introduced in 1999.
“We’re seeing risk aversion across the board,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “The default risk is coming back to haunt Europe.”
The Japanese currency strengthened 0.5 percent against the dollar to 83.81 yen at 4:41 p.m. in New York after touching 83.52, the strongest since June 1995. The euro fell 1.5 percent to $1.2686, the most since Aug. 11, and dropped 2 percent to 106.31 yen. The Swiss franc added 1.7 percent to 1.2817 per euro and touched 1.2811.
The Standard & Poor’s 500 Index dropped 1.2 percent.
U.S. Economy Slows
Morgan Stanley cut forecasts for the dollar against the euro, citing an increased likelihood of the Federal Reserve to implement further economic stimulus.
The U.S. unemployment rate is likely to approach 10 percent in coming months as the economy fails to grow enough to employ people rejoining the labor force, economist said. Private payrolls climbed 67,000 in August, after a gain of 107,000 the previous month, and the unemployment rate rose to 9.6 percent, the Labor Department reported Sept. 3.
The median forecast in a Bloomberg News survey of economists called for an increase of 40,000. The economy expanded at a 1.6 percent annual rate in the second quarter, down from 3.7 percent in January through March.
The Bank of Japan kept the benchmark overnight rate at 0.1 percent. Governor Masaaki Shirakawa and his board left its bank- loan facility at 30 trillion yen ($357 billion) after boosting the liquidity injections at an Aug. 30 emergency meeting.
“It’s really not encouraging,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “You would expect them to emphasize something more. It just encourages more bullish positions on the yen.”
Yen Path
The yen has strengthened 15 percent this year in the biggest gain among 10 developed-world counterparts as investors sought it as a refuge, Bloomberg Correlation-Weighted Currency Indices show. The gains have prompted policy makers to consider measures to curb the currency’s appreciation, which makes Japanese exporters’ products more expensive.
“I’m very concerned about the current rise of the yen,” Prime Minister Naoto Kan told Tokyo Broadcasting System television in Tokyo. “Rapid change of exchange rates gives negative impact on the economy. We’ll monitor the situation closely, and take decisive/bold measures when necessary.”
Central banks intervene in foreign-exchange markets by buying or selling currencies to influence exchange rates. Japan hasn’t intervened since 2004.
Australia’s dollar snapped a two-day gain versus the greenback after Prime Minister Julia Gillard clinched a deal with two independent lawmakers, allowing her Labor Party to retain government and pursue a tax on mining companies.
Aussie Outlook
The currency also weakened after the Reserve Bank of Australia said following a policy meeting that the global economic outlook remains “somewhat uncertain.”
“Although markets were not pricing a rate hike at this meeting, strong economic data out of Australia since the previous monetary policy statement seem to have raised market expectations of a more hawkish statement,” Aroop Chatterjee, a currency strategist at Barclays Plc. in New York, wrote in a note to clients. “Consequently, the relatively dovish statement had a slight negative effect on the Australian dollar.”
The Aussie, as the currency is nicknamed, fell 0.7 percent versus the U.S. dollar to 91.11 cents and declined 1.2 percent versus the yen to 76.35.
The Australian dollar may rally to a four-month high versus the greenback after forming a reverse head-and-shoulders pattern, according to Citigroup Inc., citing technical analysis. The Aussie may rise to 93 U.S. cents, said Tom Fitzpatrick, chief technical analyst at Citigroup in New York, in a research note to clients today.
Irish and Portuguese government bonds fell, pushing the yields on 10-year securities to records versus benchmark German bunds, on concern European banks are vulnerable to losses on their holdings of so-called peripheral euro-region debt.
European Debt
The German-Irish 10-year yield spread climbed to 380 basis points, the highest since Bloomberg started compiling the data, from 343 basis points. The Portuguese-German spread reached 355 basis points, also a record, from 333 basis points. The Greek- German 10-year yield spread reached 947 basis points.
Pacific Investment Management Co. fund manager Andrew Bosomworth said yesterday Greece faces a “substantial” default risk when its bailout program expires in three years.
The Canadian dollar fell the most in two weeks against its U.S. counterpart before the Bank of Canada policy makers meet tomorrow on interest rates. The loonie, as the currency is known, fell as much as 1 percent, the biggest intraday drop since Aug. 24, to C$1.0462 per U.S. dollar.
The Bank of Canada raised the benchmark rate by 0.25 percentage point at its June 1 meeting and again on July 20, bringing it to 0.75 percent. Governor Mark Carney said further action will be “weighed carefully against domestic and global economic developments.”
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net;
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