Yen Climbs as Drop in Risk Appetite Fuels Haven Bid; Krona Gains
The yen strengthened against all except one of its 16 most-traded counterparts as investors sought refuge amid a drop in risk appetite that sent stocks and commodities lower.
The Japanese currency gained earlier after central-bank Governor Haruhiko Kuroda said a stable financial system is important as policy makers add unprecedented stimulus. The Organization for Economic Cooperation and Development forecast global economic growth will accelerate, with Japan and the U.S. outpacing the euro area. Sweden’s krona advanced after the nation’s economy expanded more than forecast.
“Equities are underperforming, which is giving people the excuse to buy safe-haven currencies,” Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., said in a telephone interview. “Further strengthening of haven assets like the yen may be happening even more so on the OECD comments.”
Japan’s currency rallied 1.2 percent to 101.16 per dollar at 5 p.m. New York time, paring to 3.7 percent a loss for May that would be its eighth monthly decline, the longest stretch since 1996. The yen was 0.5 percent stronger at 130.90 per euro. The shared currency gained 0.7 percent to $1.2941.
U.S. and European stocks fell amid concern the Federal Reserve will slow stimulus that has boosted global markets. Fed Chairman Ben S. Bernanke told U.S. lawmakers May 22 the central bank could cut the pace of its $85 billion in monthly bond buying if officials see indications of sustained improvement in economic growth. The Standard & Poor’s 500 Index (SPX) dropped 0.7 percent, and S&P’s GSCI Index of commodities sank 1.2 percent.
Trading in over-the-counter foreign-exchange options totaled $39 billion, compared with $30 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $10 billion, the largest share of trades at 26 percent. Dollar-Chinese yuan options were the second most-actively traded, at $5.5 billion, or 14 percent.
Dollar-yuan options trading was 61 percent above the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 4 percent above average.
Switzerland’s franc appreciated versus all of its 16 major peers, jumping the most in 11 months versus the dollar, after the OECD said the Swiss National Bank may have to raise interest rates to help control a booming property market. The franc gained 1.6 percent to 96.16 centimes to the greenback and climbed as much as 1.7 percent, the most since June 29, 2012. It rose 0.9 percent to 1.2445 per euro.
The Swedish krona climbed after data showed the nation’s economy grew twice as fast as analysts predicted in the first quarter, sapping speculation the central bank will need to cut interest rates at its July meeting. The krona strengthened 1.1 percent to 6.6494 per dollar after touching 6.7276, the weakest level since Nov. 21.
The euro rose versus the greenback for the first time in four days as the European Commission eased up on the austerity policies championed by Germany in the wake of the region’s debt crisis without proposing new spending programs. Countries including France, Spain and Italy won greater budget freedom.
The 17-nation currency appreciated 4.2 percent over the past year versus nine developed-market counterparts tracked by Bloomberg Correlation-Weighted Indexes. The yen was the biggest loser, dropping 25 percent.
The OECD forecast Japan’s gross domestic product will increase 1.6 percent this year and 1.4 percent in 2014. U.S. GDP will grow 1.9 percent this year and 2.8 percent next, while the euro area’s economy will shrink 0.6 percent in 2013 before expanding 1.1 percent in 2014, the organization predicted.
The Bank of Japan pledged in April to double bond buying in an attempt to increase inflation to 2 percent and end 15 years of deflation. Board member Ryuzo Miyao said yesterday the central bank has taken all necessary steps for now.
“The BOJ fired their big bazooka and made a very aggressive move, and now they’re sitting back and watching that play out,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. “They appear to be ready to do more if they need to, but they don’t feel they need to just yet.”
Upward pressure on the yen may also be coming from an increase in Japanese bond yields, Sonja Marten, a currency strategist at DZ Bank AG in Frankfurt, wrote in a note to clients today.
The yield on Japan’s 10-year government bond rose three basis points, or 0.03 percentage point, today to 0.93 percent, the highest level on a closing basis since April 2012.
“The BOJ’s grand plan of creating growth and ending deflationary pressures on the back of a massive expansion of the monetary base, while relying on low yields to act as a conduit, doesn’t seem to be working out all that well,” Marten wrote.
Brazil’s real weakened beyond 2.10 per dollar for the first time this year as Finance Minister Guido Mantega said a declining currency isn’t a concern, a weaker real helps exporters and the government won’t use the exchange rate to curb inflation. The currency slid 1.7 percent to 2.1106 after falling 1.9 percent earlier to 2.1151, the lowest since Dec. 5.
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