Yen Falls on Prospects Japan to Intervene; Aussie Drops as RBA Holds Rates

The yen fell against most of its major peers after gains to the brink of a record against the dollar stoked speculation Japan will intervene in currency markets.

The yen dropped against the euro for the first time in five days after Japanese Finance Minister Yoshihiko Noda said the nation’s currency is overvalued and he’s watching markets closely. The Swiss franc advanced for a fourth day against the greenback amid concern spending cuts agreed to by U.S. lawmakers will damp growth. Australia’s currency slid after the nation’s Reserve Bank held its benchmark interest rate unchanged, citing global uncertainty.

“The strength of the yen is getting to the point where it requires intervention in some form,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. Speculation that Japan will intervene “is a story, and the fact that the dollar-yen has bounced a bit tells you that the market is listening to the stories.”

The yen weakened to 110.31 per euro as of 6:45 a.m. in London from 110.03 in New York yesterday. It dropped to 77.44 per dollar from 77.21. Japan’s currency reached 76.30 versus the greenback yesterday, the strongest level since it set a postwar record of 76.25 on March 17.

The Swiss franc climbed to 78.15 centimes per dollar from 78.36 yesterday, when it touched an all-time high of 77.31. The franc fetched 1.1133 per euro from 1.1165 yesterday, when it touched a record 1.1028. The 17-nation euro was at $1.4246 from $1.4250.

Export Concerns

Japanese officials are concerned that the yen’s strength will hurt domestic companies and undermine the nation’s recovery from the March 11 earthquake and tsunami, the Nikkei newspaper reported, without saying where it got the information. Noda declined to comment on possible currency intervention when speaking to reporters in Tokyo today.

Bank of Japan officials in the past week have voiced more concern about the currency, with board member Hidetoshi Kamezaki saying the central bank would need to act “proactively” should the yen’s gains pose a threat to growth and prices. The BOJ is set to meet on policy this week.

Japan last intervened on March 18, joining Group of Seven counterparts in selling the yen a day after it jumped to a record against the dollar.

“BOJ intervention in the past has only slowed the pace of JPY appreciation,” BNP Paribas SA analysts including New York- based head of currency strategy for North America Ray Attrill wrote in a research note dated yesterday. “If the BOJ does intervene the result may be the same unless it is complemented by monetary easing.”

Debt Accord

Demand for the dollar was limited on concern an agreement between President Barack Obama and Congressional leaders on raising the debt ceiling and spending cuts will weigh on growth in the world’s biggest economy. The House approved legislation to raise the U.S. debt limit by at least $2.1 trillion and cut federal spending by $2.4 trillion or more. The measure goes to the Senate for a final vote planned today.

“Looking ahead, people will be wondering whether the debt agreement will work, and spending cuts may weigh on growth,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The dollar won’t switch to a real upward trend.”

U.S. personal income increased 0.2 percent in June after gaining 0.3 percent in May, according to the median estimate of economists in a Bloomberg News survey before today’s data.

The Institute for Supply Management’s factory index fell to 50.9 in July, the lowest since July 2009, from 55.3 the prior month, data showed yesterday. Economists in a Bloomberg News survey projected it would drop to 54.5.

Dollar Index

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, rose 0.1 percent to 74.348 after gaining 0.6 percent yesterday.

The franc has gained 7.8 percent over the past month, making it the best performer among 10 major-economy currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has risen 3.2 percent, while the dollar is down 1.6 percent and the euro has declined 3.8 percent.

Reserve Bank of Australia Governor Glenn Stevens held the overnight cash rate target at 4.75 percent in Sydney for a record eighth-straight meeting, saying “the board remains concerned about the medium-term outlook for inflation.” He cited “the acute sense of uncertainty” in financial markets as a key factor for inaction.

“Clearly it’s bearish for the Aussie dollar,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s biggest interdealer broker. “They’re citing concerns over global growth. These concerns aren’t going away. I think it’s quite reasonable that we don’t get another rate hike until well into 2012.”

The so-called Aussie fell to $1.0924 from $1.0971 yesterday, after rising as high as $1.1008. The currency dropped 0.2 percent to 84.55 yen after rising as much as 1.1 percent earlier.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

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

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