The yen fell for the first time in four days versus the dollar after Deputy Economy Minister Yasutoshi Nishimura said its decline isn’t over and a level of 100 versus the U.S. currency wouldn’t be a concern.
Japan’s currency slid against all of its 16 most-traded peers after a Chinese report showed manufacturing expanded at the fastest in two years, reducing demand for the yen as a refuge. Asian currencies weakened against the dollar as North Korea threatened to test nuclear weapons. The euro gained after contraction in European manufacturing and services slowed, and Mexico’s peso rose amid stronger-than-forecast U.S. jobs data.
“The yen story is still alive,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA, said by telephone from New York. “When you have a combination of good dollar, good U.S. data, good euro data, and good Chinese data and you’re short yen, the tendency is for yen to underperform dollar and to some extent the euro.” A short position is a bet that a currency will weaken.
The yen tumbled 1.6 percent to 90.02 per dollar at 11:49 a.m. in New York after strengthening 1.7 percent during the previous three days. It slid to 90.25 on Jan. 21, the weakest level since June 2010. Japan’s currency dropped 2 percent to 120.40 per euro, approaching the 20-month low of 120.71 it reached on Jan. 18. The euro gained 0.4 percent to $1.3375. It touched $1.3404 on Jan. 14, the highest since Feb. 29, 2012.
The Mexican peso rose against the greenback after claims for jobless benefits in the U.S., its biggest trade partner, unexpectedly dropped last week to a five-year low of 330,000. Mexico’s annualized inflation fell to a 15-month low in the first half of January, reinforcing forecasts that the central bank will leave borrowing costs unchanged until next year.
The peso strengthened 0.6 percent to 12.6155 per dollar.
Israel’s shekel climbed against 31 major counterparts on speculation Prime Minister Benjamin Netanyahu will assemble a governing coalition able to curb the country’s budget deficit. This week’s elections gave Netanyahu the chance to serve a third term with a weaker mandate than four years ago, leading him to seek an alliance with centrist Yair Lapid’s Yesh Atid party.
The currency appreciated 0.5 percent to 3.7130 per dollar.
The yen slumped 19 percent in the past six months, the worst performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar dropped 4.7 percent, and the euro advanced 6.9 percent.
“These short yen positions that have been building over the last two months will be quite tolerant of no change for a while in terms of the government actually delivering anything simply because you’ve had a change of government and the rhetoric has been so strong,” Adam Cole, global head of foreign-exchange strategy in London at Royal Bank of Canada’s RBC Capital Markets, said in an interview. “Investors will be prepared to give the new government time to deliver.”
The yen at 100 per dollar would be acceptable, Nishimura said in an interview in Tokyo, suggesting global criticism may fail to convince Prime Minister Shinzo Abe to temper his push to weaken the currency. German Chancellor Angela Merkel said today in Davos, Switzerland, that the Japanese government’s call for monetary easing is a risk to the global economic recovery.
Abe, who took office last month, is working to boost the economy and has called for “bold monetary policy” to defeat deflation and drive the yen lower.
“The current level around 90 can be said to be a correction of the strong yen, but it isn’t over yet,” Deputy Economy Minister Nishimura said. A level of 110 to 120 would raise import costs, he said, suggesting the government won’t back a currency free-fall.
The probability of the yen weakening to 100 by year-end was 25 percent today, according to options data compiled by Bloomberg.
Japan’s currency fell in early Asian trading after HSBC Holdings Plc and Markit Economics said their preliminary reading of China’s Purchasing Managers’ Index increased to 51.9 in January from 51.5 the previous month. The data suggest China’s expansion at the start of 2013 will equal or exceed its 7.9 percent pace in the fourth quarter.
“Yen weakness kicked in squarely as a function of the Chinese data,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “The Chinese data surprised to the upside for many people. The global backdrop is showing an improving trend that’s not factored into the market yet.”
Asian currencies fell as North Korea threatened to conduct a nuclear weapons test “targeted” at the U.S. after the U.S. pushed through new United Nations sanctions against the state for its rocket launch last month.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, reached 118.42, the least since Jan. 10.
The euro strengthened against all except two of its 16 most-traded counterparts after Markit Economics released its survey of purchasing managers in manufacturing and services.
A composite index based on the survey climbed to 48.2 this month from 47.2 in December, the data showed. A reading below 50 indicates contraction.
The 17-nation currency rose for the first time in five days against the Swiss franc, gaining 0.4 percent to 1.2427 francs.
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