Yen Declines as Asian Stocks Gain; Aussie Dollar Climbs

The yen weakened against most of its 16 major counterparts as Asian stocks advanced and the extra yield on 10-year U.S. Treasuries over Japanese government bonds widened to the most in more than two months.

The yen briefly pared declines after the Bank of Japan (8301) refrained from adding stimulus at a policy meeting today. The euro remained lower against the pound following a two-day decline before data forecast to show French industrial production fell. The Australian dollar advanced after payrolls increased more than estimated.

“The market is turning risk-on and the yield gap between the U.S. and Japan is widening,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The yen is being sold against the dollar.”

The yen fell 0.1 percent to 78.51 as of 7:08 a.m. in London from the close in New York yesterday. It lost 0.1 percent to 97.10 per euro. Europe’s shared currency was little changed at 78.95 pence after declining 0.6 percent in the past two days.

The MSCI Asia Pacific Index (MXAP) of stocks advanced 0.8 percent, after having risen 2.6 percent in the past three days.

The extra yield investors receive for holding 10-year Treasuries compared with similar maturity Japanese government bonds was at 89 basis points, or 0.89 percentage point, the widest since May 29. The spread for two-year notes rose to 18.5, the most since July 5.

BOJ Policy

The BOJ kept its asset-purchase fund at 45 trillion yen ($573 billion) and lending facility at 25 trillion yen, according to a statement released in Tokyo. All 22 analysts surveyed by Bloomberg News predicted no change.

“Impact on the yen for what the BOJ does is, I think, always going to be just leading intraday kneejerk reactions,” said Sacha Tihanyi, a senior currency strategist at Scotiabank in Hong Kong, a unit of Bank of Nova Scotia. “They’re doing their best to indirectly weaken the yen, but I think it’s nothing that they can really do on a sustained basis,” said Tihanyi, referring to the BOJ.

The Japanese currency has declined 1.8 percent in the past week, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has lost 1.4 percent and the euro has gained 0.3 percent.

French industrial production probably fell 1.8 percent in June from a year earlier, when it dropped 3.5 percent, according to the median estimate of economists surveyed by Bloomberg before the statistics office Insee releases data tomorrow.

Credit Ratings

DBRS Inc. cut credit ratings on Spain and Italy yesterday, reducing Spain two steps to A (low) from A (high) and Italy by one level to A. Ireland’s grade was confirmed at A (low), four steps from junk.

Italy faces “persistent stress in market-funding conditions and rising systemic risks,” and financing conditions also pose a threat to Spain’s growth outlook, Toronto-based DBRS said. Doubts about the euro area’s policy response to the crisis contributed to both downgrades, it said.

“It’s hard to see any upside for the euro at the moment,” said Janu Chan, Sydney-based economist at St. George Bank Ltd. “Economic data has been quite soft. There’s still a bit of uncertainty about what the ECB can do and will do in addressing the crisis,” she said, referring to the European Central Bank.

The Australian dollar strengthened against 14 of its 16 major counterparts. The number of people employed in the South Pacific nation rose by 14,000, the statistics bureau said today, exceeding the 10,000 increase predicted by the median economist estimate in a Bloomberg survey. The jobless rate fell to 5.2 percent from a revised 5.3 percent in June.

The Australian jobs data “was, on balance, better than expected,” said Andrew Salter, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd.

The so-called Aussie added 0.2 percent to $1.0595.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@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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