Yen Gains as Central Bank Holds Off Easing; Euro Weakens

The yen advanced for a second week versus the euro and the dollar after the Bank of Japan refrained from further moves to stimulate growth and Spanish bond yields climbed, reviving concern Europe’s debt crisis will spread.

The 17-nation currency fell as investors wagered the European Central Bank won’t restart its government-bond purchase program. The dollar rose versus 10 of its 16 most-traded peers as investors sought haven, pushing Treasury 10-year yields below 2 percent before the Federal Reserve meets on April 24. The Australian and New Zealand dollars gained on stronger domestic data and speculation China will take steps to boost its economy.

“The Bank of Japan became a bit more neutral, and that shift gave support to the Japanese yen because it reduced expectations for easing,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said yesterday. “One of the major supports of the yen is low U.S. yields. With the 10-year below 2 percent, that will drive dollar-yen lower.”

The Japanese currency rallied 1 percent to 105.83 versus the euro yesterday in New York, from 106.86 on April 6. It touched 105.45 on April 11, the strongest level since February. The yen gained 0.9 percent to 80.93 per dollar, after touching 80.57 on April 11, the strongest in six weeks. The dollar appreciated 0.1 percent to $1.3078 per euro.

Chinese Economy

The Australian currency climbed against all of its major counterparts except the Singapore dollar and the yen as China recorded an unexpected trade surplus and the slowest economic expansion in almost three years. The data fueled speculation the People’s Bank of China will move to stimulate economic growth. The nation is Australia’s biggest trading partner.

Chinese gross domestic product grew 8.1 percent year-on- year in the first quarter, the slowest in almost three years, data showed yesterday.

“Expectations for slowing in the Chinese economy are already fairly entrenched, but at the same time there is ample scope for policy easing,” Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York, said. “The negatives of weak economic data have been offset by expectations of monetary easing.”

Australia’s dollar also strengthened as payrolls in the nation added 44,000 jobs in March, more than six times the forecast in a Bloomberg News survey of economists.

The Aussie rose 0.6 percent to $1.0370 and reached $1.0453, the highest since April 3. It declined 0.2 percent to 83.94 yen.

Stronger Confidence

New Zealand’s dollar rallied versus its U.S. counterpart after the South Pacific nation’s business confidence rose in the first quarter. The currency, nicknamed the kiwi, was 0.4 percent stronger at 82.28 U.S. cents. It fell 0.5 percent to 66.59 yen.

Implied volatility on three-month options on Group of Seven nations’ currencies fell yesterday to the lowest level since August 2008, 9.7 percent, according to a JPMorgan Chase & Co. index. The average over the past decade is 10.6 percent.

Lower volatility makes investments in currencies of nations with higher benchmark rates more attractive because the risk in such trades is that market moves will erase profits.

Futures traders increased their bets that the euro will decline against the dollar to the highest level in five weeks. Net-euro shorts rose to 101,364 in the five days ended April 10, from 79,480 in the previous period, figures from the Commodity Futures Trading Commission show.

Spanish Bonds

Europe’s shared currency erased a weekly gain against the dollar after Klaas Knot, a member of the ECB governing council, said yesterday he didn’t see sufficient justification for the central bank to buy Spanish government bonds.

Spain’s 10-year (GSPG10YR) securities dropped this week, pushing their yields up 22 basis points, or 0.22 percentage point, to 5.98 percent. They have jumped 62 basis points this month amid concern they’re approaching the 7 percent threshold reached by Greece, Portugal and Ireland before their bailouts.

The cost of insuring against a Spanish-government default rose to a record 498 basis points, according to CMA prices. A basis point on a credit-default swap protecting 10 million euros ($13.1 million) of debt for five years is equivalent to 1,000 euros a year.

“I don’t see a good reason” for the ECB to purchase government bonds, Knot said at an event in Amsterdam. “I think there has been an overreaction to the unfortunate communication surrounding Spain.”

Dollar Gains

The greenback rose against the euro, South African rand and Mexican peso as increasing demand for dollar-denominated assets pushed the yield on the 10-year Treasury below 2 percent for the first time in almost a month. The peso tumbled 1.5 percent to 13.1775 per dollar, and the rand dropped 0.8 percent to 7.9491.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for April unexpectedly fell yesterday, and the Labor Department reported April 12 the most Americans since January filed for jobless benefits last week. A separate report on April 6 said U.S. nonfarm payrolls added 120,000 jobs in March, the least in five months.

The U.S. economy is still “far from having fully recovered” from the financial crisis, Fed Chairman Ben S. Bernanke said April 9 at a conference in Stone Mountain, Georgia.

The Fed meets this month in a two-day policy session. It bought $2.3 trillion of assets from December 2008 to June 2011 to support the economy, and it has held its benchmark interest rate at zero to 0.25 percent since December 2008.

Bank of Japan

The yen climbed 3 percent over the past month, the biggest winner among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes. The euro and dollar each rose 0.2 percent, while Australia’s dollar slid 1.7 percent.

Bank of Japan policy makers on April 10 kept their key interest rate and asset-purchase plan unchanged, the second straight meeting without a policy shift. They next announce a policy decision on April 27.

Gains in the currency were limited after Governor Masaaki Shirakawa said policy makers could “pursue powerful easing.” Defeating deflation and achieving sustained growth are important tasks for the central bank, Shirakawa said April 12 in Tokyo.

“The market is still expecting that the BOJ will do something to ease policy,” Hitoshi Asaoka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., said April 12. The firm is a unit of Japan’s third-largest listed bank.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net;

To contact the editor responsible for this story: Robert Burgess at bburgess@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.