Yen Slides Most in Three Years After Japan Intervenes; Euro, Krone Weaken
The yen slumped the most since 2008 against the dollar as Japan stepped in to foreign-exchange markets to weaken the currency for the third time this year after its gain to a postwar record threatened exporters.
The dollar rose against all its major peers after MF Global Holdings Ltd. filed for bankruptcy after making bets on European sovereign debt, driving stocks down and boosting refuge demand. The yen fell against its 16 most-traded counterparts tracked by Bloomberg after Japan’s Finance Minister Jun Azumi ordered the intervention. The euro extended its drop after Greek Prime Minister George Papandreou said he will put the region’s new agreement on financing for his nation to a referendum.
“The yen is no longer a safe-haven instrument to buy in times of risk aversion,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “When you do get risk aversion going forward, the dollar is the only true remaining currency that won’t be debauched by authorities. The reason to buy risk today is few and far between.”
The yen depreciated 3 percent to 78.17 per dollar at 5 p.m. New York time, after touching the post-World War II high of 75.35. Japan’s currency dropped 1.4 percent in October. The yen slid 1 percent to 108.33 per euro and weakened 1.5 percent to 82.31 per Australian dollar. The euro fell 2 percent to $1.3858, paring this month’s rally to 3.5 percent. The franc gained 0.5 percent to 1.2152 per euro.
Japan’s currency earlier today dropped as much as 4.9 percent after the intervention. That’s the biggest decline on an intraday basis since a 6.1 percent plunge on Oct. 28, 2008, three days before the Bank of Japan cut its target lending rate.
The dollar rose 2.6 percent to 1.7157 Brazilian reais today as a drop in stocks reduced demand for high-yielding assets. The greenback increased 2.7 percent to 13.3517 Mexican pesos.
The board of MF Global, the futures broker run by Jon Corzine, met through the weekend in New York to consider options including a sale to avert failure, according to a person with direct knowledge of the situation. It was stopped from doing new business with the Federal Reserve Bank of New York until it shows it’s able to fulfill its responsibilities as a primary dealer, according to a statement on the regulator’s website.
The Standard & Poor’s 500 Index dropped 2.5 percent. Crude oil for December delivery fell 1 percent to $92.57 a barrel. The Treasury 10-year note yield slid to 2.11 percent.
The yen weakened as Japan’s Azumi pledged to keep selling the currency after it climbed to the postwar record versus the dollar earlier today. Japan last intervened to weaken the yen in August, when it sold 4.51 trillion yen ($57.8 billion), the largest monthly amount since March 2004.
“I’ve repeatedly said that we’ll take bold action against speculative moves in the market,” Azumi told reporters today after the government acted unilaterally.
The Group of Seven nations jointly sold the yen in March, following the country’s record earthquake and tsunami. It was the first such effort in more than a decade.
The yen and franc have climbed to records this year as investors sought havens from fiscal crises in the U.S. and Europe. The Swiss currency has weakened since Sept. 6, when the Swiss National Bank imposed a ceiling of 1.20 per euro and resumed purchases of foreign exchange.
“Once the yen started printing new highs, the chance of intervention was there,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The move has already been partly reversed, and it still suggests that the market’s bias is strongly toward buying the yen rather than selling the yen.”
The yen and franc tend to strengthen in periods of financial turmoil because current-account surpluses in the nations make them less reliant on foreign capital. A stronger local currency hurts the overseas competitiveness of exporters and cuts the value of their overseas income when repatriated.
Euro-region’s leaders agreed last week to increase their bailout fund to 1 trillion euros ($1.4 trillion) and recapitalize financial institutions. They convinced banks to write down their holdings of Greek debt by 50 percent.
Greece’s Papandreou said today he’ll put the new agreement to a referendum, saying he has faith in receiving support from Greeks.
Papandreou is suffering from a slump in popularity from repeated cuts to pensions and wages as well as tax increases to qualify for international financing. His gambit threatens to bring down his government.
Most Greeks believe the latest European Union accord on a new bailout package and a debt writedown for the country is negative, an opinion poll showed on Oct. 29.
Italian Bond Yields
Italian bond yields have remained elevated, with the 10- year yield rising today as much as 16 basis points, or 0.16 percentage point, to 6.18 percent, the highest level since Aug. 5. Spanish yields increased as much as 15 basis points to 5.66 percent, matching the level Aug. 8.
The dollar Libor-OIS spread widened to 34 basis points, the highest level since July 2009, in an indication of financial institutions’ reluctance to lend.
Norway’s krone slid against most major counterparts after the central bank said it will buy foreign exchange equivalent to 1.6 billion kroner ($290 million) a day for the country’s global pension fund in November.
The amount was larger than what some market participants were expecting, Valentin Marinov, foreign-exchange strategist at Citigroup Inc. in London, wrote in a note to clients. Investors had forecast an addition of about 800 million kroner, he said.
The krone fell 2.2 percent to 5.5535 per dollar and depreciated 0.2 percent to 7.6957 against the euro.
IntercontinentalExchange Inc.’s Dollar Index, used to track the greenback against the currencies of six major U.S. trading partners, increased 1.9 percent to 76.476 and pared its monthly drop as investors sought an alternative refuge to the yen.
Fed Vice Chairman Janet Yellen and other central bank officials have said the central bank should be prepared to do more to spur growth as policy makers prepared for a two-day meeting that starts tomorrow.
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