Yen Rises to 11-Week High Versus Euro on China Tightening, Irish Contagion

The yen strengthened to an 11-week high against the euro as speculation China will take more measures to cool its economy and Europe’s debt woes will worsen boosted demand for safer assets.

Japan’s currency gained versus all 16 of its major counterparts after the China Daily quoted Zhong Jiyin, an economist at the Chinese Academy of Social Sciences, as saying his nation needs to raise interest rates by 2 percentage points. The euro fell toward a 10-week low versus the dollar on concern Ireland’s banking crisis will spread to Portugal and Spain amid signs the region’s economic recovery is slowing.

“China is likely to tighten monetary policy, given inflation risks,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “There’s risk aversion, so the yen and the dollar may be bought.”

The yen climbed to 110.22 per euro as of 6:45 a.m. in London from 110.60 in New York yesterday, after rising to 109.99, the strongest since Sept. 15. Japan’s currency was at 84.03 per dollar from 84.26. The euro traded at $1.3106 from $1.3125 yesterday, when it slid to $1.3064, the weakest since Sept. 21.

China’s recent increases in the reserve requirement ratio won’t be enough to reverse excessive liquidity in the system, Zhong wrote in a commentary in the newspaper. The People’s Bank of China has ordered banks to set aside larger reserves twice in two weeks after raising interest rates in October, the first increase since 2007.

Sentiment ‘Weak’

“Risk sentiment is weak,” said Imre Speizer, a Wellington-based market strategist at Westpac Banking Corp., Australia’s second-largest bank. “Concerns that euro-zone contagion can spread further are sending currency investors into a safe-haven currency, and for now that safe haven is deemed to be the U.S. dollar.”

China’s consumer prices increased 4.4 percent last month, the statistics bureau reported Nov. 11, more than the 4 percent median forecast in a Bloomberg News survey.

The Australian dollar fell for a fourth day as speculation the Chinese government will raise interest rates pushed down the Asian nation’s stocks.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 1.6 percent. Earlier it slid 3.8 percent, the most in two weeks. Australia is the world’s largest exporter of iron ore and coal and counts China as its biggest trading partner.

Australian dollar declined 0.1 percent to 96.21 U.S. cents, and slipped 0.4 percent to 80.86 yen.

Spain, Portugal

The euro has weakened 6 percent this month against the dollar, its biggest drop since May.

Investor concern has shifted to Spain and Portugal since Nov. 28, when European governments sought to bolster the euro by giving Ireland an 85 billion-euro ($111 billion) bailout package.

“As markets continue to fret over Irish contagion, we wouldn’t be surprised to see further declines in the euro,” Spiros Papadopoulos, a senior economist at National Australia Bank Ltd. in Melbourne, wrote in a research note today. The next key support level is viewed as around $1.30 per euro, he said.

The yield on Spain’s 10-year bonds jumped 28 basis points yesterday to as high as 5.45 percent, the most since 2002. The difference in yield, or spread, over German bunds widened to a euro-era record of 267 basis points.

‘Fiscal Consolidation’

“Portugal needs to assure strong fiscal consolidation continuing in 2012 and beyond,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday. If growth proved to be “somewhat lower” than expected, “then it’s essential still to meet fiscal targets by taking additional measures,” he said. Rehn will speak today in Brussels.

The 16-nation euro area’s jobless rate was unchanged from the previous month at 10.1 percent in October, according to a Bloomberg survey before today’s report. That’s would match the highest reading since 1998. Gross domestic product in the region may grow at a 1.5 percent rate in 2011 from 1.7 percent this year, the European Commission said in a report yesterday.

The dollar headed for its first monthly gain since April against the yen on speculation the U.S. economic recovery is gaining momentum.

The Conference Board’s U.S. consumer confidence index climbed to 53 this month from 50.2 in October, according to a Bloomberg survey before today’s report.

“We’ll likely to get a series of favorable economic data for the dollar,” said Keiji Matsumoto, a currency strategist in Tokyo at Nikko Cordial Securities Inc. “Improving consumer sentiment is one of factors that pushes the greenback higher.”

The dollar has gained 0.3 percent against a measure of the currencies of 10 developed nations this year, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has risen 12 percent and the euro has weakened 9.1 percent.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.