Yen Pares Intervention Losses as Exporters Buy at Two-Week Low; Kiwi Drops
Yen Pares Intervention Losses
Tomohiro Ohsumi/Bloomberg
The yen appreciated against all its major peers amid speculation Japanese exporters seized the chance to buy the currency near a two-week low to bring home overseas earnings before the end of the fiscal first half.
The yen appreciated against all its major peers amid speculation Japanese exporters seized the chance to buy the currency near a two-week low to bring home overseas earnings before the end of the fiscal first half. Photographer: Tomohiro Ohsumi/Bloomberg
Sept. 16 (Bloomberg) -- Masafumi Yamamoto, chief currency strategist at Barclays Bank Plc in Tokyo, discusses Japan's currency policy. The yen pared yesterday’s losses after Japan’s first intervention in exchange markets since 2004 sent the currency tumbling the most in 22 months. Yamamoto talks with Phillip Yin on Bloomberg Television. (Source: Bloomberg)
The yen advanced against the dollar, paring losses from yesterday when Japan’s first intervention in foreign-exchange markets since 2004 sent the currency tumbling the most in 22 months.
The yen gained earlier against the euro on speculation Japanese exporters seized the chance to buy the currency near a two-week low to bring home overseas earnings before the fiscal first half ends. China’s yuan earlier touched 6.7180, the strongest level since the central bank unified official and market exchange rates at the end of 1993, as U.S. lawmakers faulted China’s currency policy as predatory. The euro rose after Spain sold the maximum target at a bond auction.
“The market is testing the Bank of Japan to see where they are setting the floor,” said Geoffrey Yu, a currency strategist at UBS AG in London. “It’s not clear yet whether they are trying to promote a weaker yen or just prevent it from rising. There’s a seasonal factor here too, but that’s not as strong as the market one.”
The yen appreciated 0.1 percent to 85.66 per dollar as of 7:06 a.m. in New York from 85.75 in New York yesterday, when it fell to 85.78, the weakest level since Aug. 30. Japan’s currency slid 0.5 percent to 112.15 per euro after earlier climbing as much as 0.8 percent. The euro rose 0.6 percent at $1.3091. The yuan rose 0.3 percent to 6.7250 per dollar.
Vice Finance Minister Motohisa Ikeda today declined to comment on whether the Japanese government is intervening in markets as the currency pared its advance.
Euro Rebounds
Spain sold 4 billion euros of 10- and 30-year bonds, the maximum target for the auction, and borrowing costs declined after the government implemented measures to shrink the euro region’s third-largest budget gap.
Investors also bought the euro as an indicator of the interest-rate gap between the common currency and the dollar rose to the highest since January last year, according to Credit Suisse Group AG.
The yield spread between two-year euro swap rates and those denominated in the dollar rose to 77 basis points today, the most since January last year, according to Bloomberg data. Swap rates typically mirror the trend of movements of similar- maturity government debt yields.
“The interest-rate differential as seen in the two-year swaps market is one of key factors that drove the euro higher,” said Marcus Hettinger, a currency strategist at Credit Suisse Group AG in Zurich. “Some people are also re-positioning ahead of the Fed meeting next week on speculation there might be indication of further quantitative easing which is negative for the dollar.”
Swiss Growth
The Swiss franc rose against the dollar as the government raised its forecast for economic growth this year after the economy expanded at a faster-than-expected pace in the second quarter.
Swiss growth domestic product will rise 2.7 percent instead of 1.8 percent projected in June, the State Secretariat for Economic Affairs said in a statement today.
The franc strengthened to 1.0005 per dollar.
The Swiss National Bank will keep its so-called three-month Libor target rate at 0.25 percent today, according to all but one of 19 analysts surveyed by Bloomberg.
The Japanese currency’s current level against the dollar is still stronger than the 90.16 average estimated by large manufacturers for the six months to March 2011, according to the Bank of Japan’s last Tankan survey. Exporters typically buy yen to convert overseas earnings into their own currency when they close account books in September and March.
‘Decisive Measures’
Japan sold the yen yesterday after it climbed to 82.88, the strongest since May 1995. Chief Cabinet Secretary Yoshito Sengoku told reporters the finance ministry “seems to think” 82 yen per dollar to be the line of defense. Prime Minister Naoto Kan said today that his government will not tolerate “rapid movements” in the currency and is ready to take “decisive measures.”
“Japan seems to be serious about halting the yen’s rise this time and won’t dare to drop the ball,” said Hiroshi Maeba, deputy general manager of foreign-exchange trading in Tokyo at Nomura Securities Co., Japan’s biggest securities broker. “The government is likely to continue to intervene intermittently.”
The nation may have sold more than 2 trillion yen ($23.4 billion) yesterday, the largest single-day intervention, Nikkei English News reported today, without citing anyone.
Japan’s action is “deeply disturbing,” Sander Levin, a Democratic congressman from Michigan, said yesterday at the start of a committee hearing on China’s exchange-rate policy.
‘Won’t Participate’
“It is apparent that both the U.S. and Europe won’t participate in coordinated action with Japan,” said Kazumasa Yamaoka, a chief strategist at investment advisory company GCI Research Institute Ltd. in Tokyo. “Due to a lack of any follow- through move today, the market is trying to assess if Japan has a resolution to guide the yen lower, or if it’s simply trying to halt any further gains.”
The yen has risen 9 percent against the dollar this year as global risk aversion has boosted the currency. The yen tends to strengthen during periods of economic turmoil as Japan’s trade surplus makes the nation less reliant on foreign capital. A stronger domestic currency hurts the overseas competitiveness of Japanese exporters.
Japan made a “big mistake” by indicating a barrier for the yen’s exchange rate as it may invite an attack by speculators, JPMorgan Chase & Co. said.
“It’s inevitable that the yen will strengthen again, and the yen at 82 will become the focus for speculation that the government will intervene again,” said Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan, who earlier this week said intervention odds had doubled after the conclusion of Japan’s ruling party leadership contest. “Once the yen breaks 82 we could see a jump all the way to 79.75.”
U.S. Criticism
While U.S. lawmakers criticized China’s currency policy, they disagreed on the need for legislation that would punish the nation for keeping its currency undervalued.
Representative Tim Ryan, an Ohio Democrat and co-sponsor of legislation letting companies seek duties on Chinese imports, said China is violating trade laws and the bill would give the U.S. tools to combat undervalued currencies.
“It’s now time for our country to have the guts to stand up and take a strong stand against China’s currency manipulation,” Ryan said yesterday in testimony to the House Ways and Means Committee. Representative Dave Camp, top Republican on the panel, said he opposes the legislation.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net;
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