Yen Rises Against Major Peers on Europe’s Credit Crisis

The yen gained against most of its major peers as turmoil in Spain’s banking sector added to signs Europe’s debt crisis is spreading, boosting investor demand for safer assets.

Japan’s currency reached the strongest level in more than three months versus the dollar as the country’s benchmark bond yield fell to the lowest since 2003 and U.S. rates plunged to record lows as shares retreated globally. The euro slid for an eighth-straight day against the yen, the longest losing streak in almost two years, before data tomorrow forecast to show European manufacturing shrank and the jobless rate in the common currency area increased.

“Fear is moving the market,” said Masafumi Yamamoto, chief currency strategist in Tokyo at Barclays Capital. “It started from worries over Greece and then Spain. Investors have no choice other than to buy the yen and the dollar as they sell off other currencies.”

The yen rose 0.1 percent to 97.69 per euro as of 7:07 a.m. in London, poised for its longest stretch of daily gains since June 2010. The Japanese currency climbed 0.3 percent to 78.81 per dollar, after earlier touching 78.71, the strongest since Feb. 16. The euro dropped to $1.2358, its weakest since July 2010, before rising 0.2 percent to $1.2394.

The shared currency reached $1.1877 in June of 2010, which was the lowest level in four years, after escalating concern Greece was unable to pay its debts led to the bloc’s first bailout. Since its inception in 1999, the euro has traded as low as 82.30 U.S. cents, in 2000, and as high as $1.6038 in July 2008.

ECB Denial

The MSCI Asia Pacific Index (MXAP) of stocks fell 0.6 percent today. The Standard & Poor’s 500 Index of U.S. stocks lost 1.4 percent yesterday, while the MSCI World Index (MXWO) sank 1.7 percent.

Yields on Japan’s 10-year government notes declined to as low as 0.81 percent today, the least since July 2003. U.S. 10- year yields slid to a record low of 1.5933 percent.

The European Central Bank denied it has rejected a plan floated by Spain’s government to recapitalize Bankia group, the nation’s third-largest lender, saying it hasn’t been approached. The Spanish government itself has backtracked on an idea to recapitalize Bankia by injecting sovereign debt into its parent company that, according to the Financial Times, could then be used as collateral to borrow from the ECB.

Spanish Yields

Spain’s 10-year bond yield rose as high as 6.70 percent yesterday, approaching the 7 percent level that led to bailouts in Greece, Ireland and Portugal.

A measure of euro-area manufacturing probably decreased to 45 in May from 45.9 in April, the lowest in 35 months, according to a Bloomberg News survey of economists before London-based Markit Economics releases its final reading of the gauge tomorrow. The unemployment rate probably climbed to 11 percent last month, the highest in data compiled by Bloomberg going back to 1990, a separate poll showed before labor market figures are released tomorrow.

Losses in the euro were limited as the common currency’s 14-day relative strength index against the dollar fell to 20 yesterday, below the 30 level some traders see as signaling an asset may reverse declines.

“I think the risk for the euro is still to the downside, but I’m not sure if it’s going to continue to fall quite as rapidly as it has,” said Kikuko Takeda, senior currency economist at Bank of Tokyo Mitsubishi UFJ Ltd. in London. “It’s possible some news may trigger a bounce in the euro.”

The euro has declined 1.6 percent in the past month according to Bloomberg Correlation-Weighted Indexes, a gauge of 10 developed-market currencies. The yen climbed 7.4 percent, the best performer, while the dollar strengthened 5.9 percent.

‘A Bigger Issue’

“What’s going on in Europe is bigger than what’s happening in one mid-sized investment bank having solvency problems,” Richard Yetsenga, head of global markets research at Australia & New Zealand Banking Group Ltd. (ANZ), said in an interview on Bloomberg Television. “It’s a bigger issue about the structure of the euro zone. I think the yen should be stronger than many think and the risk environment is adding to that case.”

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose to as high as 83.11 today, the most since September 2010, before trading at 82.91 from 83.05 yesterday.

The index may advance toward 83.56 after it rose above 82.59 on May 29, the 61.8 percent retracement from its high in June 2010 to the low on May 2011, according to JPMorgan Chase & Co., citing a Fibonacci chart.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a new high or low.

“The short-term upside risks remain intact,” Niall O’Connor, a technical analyst at JPMorgan, wrote in a research note yesterday.

-- With reporting by Hiroko Komiya in Tokyo, Mika Otsuka in New York. Editors: Benjamin Purvis, Naoto Hosoda

To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net.

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