Yen Gains Versus Major Peers as Factory Data Spurs Demand
The yen strengthened against most of its major peers as Asian stocks slid amid signs manufacturing is slowing across the globe, boosting demand for refuge assets.
Japan’s currency climbed against the euro after a purchasing managers’ index in China showed the slowest manufacturing expansion in eight months and before a European factory gauge that’s forecast to show a decline this month. The dollar touched a two-month low against the yen as a signs of economic slowdown in the U.S. boosted speculation the Federal Reserve will signal additional monetary easing at the end of its meeting today.
“The market is shifting to a risk-off stance on the back of stocks declines and weaker Chinese economic data,” said Junya Tanase, chief currency strategist at JPMorgan Chase & Co. in Tokyo. “The yen is being bought in a bid for safety.”
The yen strengthened 0.2 percent to 95.93 per euro as of 2:16 p.m. in Tokyo. Japan’s currency added 0.1 percent to 78.03 per dollar after touching 77.91, the strongest since June 1. The euro was little changed at $1.2295 from $1.2304 yesterday.
China’s PMI dipped to 50.1 in July from 50.2 in June, the National Bureau of Statistics and the China Federation of Logistics and Purchasing said today. Economists in a Bloomberg News survey predicted a reading of 50.5, while 50 is the dividing line between growth and contraction. That followed figures from Australia that showed manufacturing declined to a three-year low last month.
London-based Markit Economics is expected to confirm today that a gauge of euro-region manufacturing declined to 44.1 in July, according to a Bloomberg survey of economists. That would be in line with an earlier reading and the lowest since June 2009.
The yen tends to appreciate during periods of financial turmoil because Japan’s current-account surplus makes it less reliant on foreign capital. It has surged 6.2 percent in the past three months, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has lost 4.9 percent while the dollar added 3.2 percent.
“The debt crisis will not be resolved any time soon and that will continue to weigh on the euro in the longer term,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “Economies in the region will deteriorate as governments around the region move toward austerity.”
Spanish Economy Minister Luis de Guindos is pushing for additional budget cuts after his German counterpart, Wolfgang Schaeuble, signaled to him that such a move would be rewarded by bond market assistance, according to two people in Madrid familiar with his thinking.
De Guindos wants further cuts in health and education spending after Schaeuble told him that such a move would enable Germany to support any steps by the European Central Bank to push down Spanish borrowing costs, said the people, who asked not to be named as the discussions were confidential. ECB President Mario Draghi also backs de Guindos’s push, said one of the people. The ECB’s Governing Council meets in Frankfurt tomorrow.
Yields on Spanish government 10-year bonds climbed to 6.75 percent yesterday, toward the euro-era record of 7.75 percent set on July 25.
Demand for the dollar was limited before a private payrolls report today forecast to show the pace of hiring in the U.S. slowed, supporting bets the Fed will signal additional stimulus which would debase the currency. Companies probably added 120,000 jobs last month, down from 176,000 in June, according to the median estimate of economists surveyed by Bloomberg before ADP Employer Services releases its data today.
The Labor Department is scheduled to release its monthly jobs report on Aug. 3, with the unemployment rate predicted to remain unchanged at 8.2 percent, according to a separate poll.
The U.S. central bank bought $2.3 trillion of securities in two rounds of asset purchases from 2008 to 2011 in a bid to spur growth, and it has said its benchmark interest rate will stay at “exceptionally low levels” at least through late 2014. While the Fed refrained from introducing a third round of asset purchases known as quantitative easing at its June meeting, Bernanke indicated it’s an option.
“I think the Fed will ease as the growth in the U.S. economy is clearly slowing,” said Mizuho’s Suzuki. “The Fed most likely will lengthen its pledge to keep interest rates low. That could be a catalyst for the dollar to be sold.”
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was at 82.69, little changed from yesterday. The gauge touched 82.34 on July 27, the lowest since July 5.
-- With reporting by Kazumi Miura in Tokyo. Editors: Jonathan Annells, Stuart Biggs
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