Yen Falls on Bond Flows, China-Fueled Stock Gains; Pound Slides

The yen fell against all of its 16 major peers as a report showed Japanese investors sent funds into foreign bonds for a fourth week and as Asian shares climbed on better-than-forecast Chinese manufacturing data.

The Japanese currency headed for its biggest loss in a week against the U.S. dollar. The pound slid to the weakest in more than four months versus the euro before policy decisions by the Bank of England and the European Central Bank. Australia’s dollar reached the lowest in almost three years on bets the Reserve Bank will cut interest rates next week.

“The yen is being sold as stock gains boost risk appetite,” said Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd. in Tokyo. “The net buying of foreign bonds by Japanese investors certainly doesn’t help the yen either.”

The yen fell 0.6 percent to 98.45 per dollar as of 7:21 a.m. in London from yesterday, when it touched 97.59, the strongest since June 27. It slid 0.4 percent to 130.71 per euro. The dollar advanced 0.2 percent to $1.3273 per euro, after yesterday touching $1.3345, the weakest since June 19.

Sterling slipped 0.1 percent to 87.53 pence per euro, after earlier reaching 87.70, the least since March 12. It fell 0.3 percent to $1.5164.

The MSCI Asia Pacific Index of stocks rose 0.9 percent, rebounding from a 1.2 percent decline yesterday. Japan’s Topix index gained 2.1 percent, bouncing back from a 1.5 percent decline in the previous session.

Bond Buying

Japanese investors purchased 233.2 billion yen ($2.4 billion) in overseas bonds and notes in the seven days ended July 26, according to figures released today by the Ministry of Finance in Tokyo.

Bank of Japan Governor Haruhiko Kuroda in April unveiled a plan to buy more than 7 trillion yen of Japanese debt a month to spur the economy and end deflation. He has said the policy would compel domestic investors to rebalance their portfolios by purchasing foreign bonds and other assets.

In Europe, the Frankfurt-based ECB will leave its benchmark interest rate unchanged at 0.5 percent today, according to all but one of more than 60 estimates compiled by Bloomberg.

“We do not expect the ECB to become more dovish on monetary policy as soon as this week,” Manuel Oliveri, a London-based foreign-exchange strategist at Credit Agricole Corporate & Investment Bank, wrote in an e-mailed note to clients. “Euro downside may stay limited for the time being.”

BOE Meeting

The BOE will keep its bond-purchase program at 375 billion pounds ($568 billion) and its key rate at a record low 0.5 percent, separate surveys showed.

At the previous meeting of the BOE’s Monetary Policy Committee, officials signaled that they would keep interest rates at a record low for longer than investors had been betting. The analysis of providing forward guidance to be published in the Inflation Report on Aug. 7 will include an assessment of intermediate thresholds.

“The BOE is likely to stay on hold until the August inflation report,” Gaitame’s Gervaise said. “The market is looking closely for clues on ECB’s stance on additional easing.”

Australia’s dollar sank as traders ramped up bets for Reserve Bank interest rate cuts. It traded 0.2 percent lower at 89.61 U.S. cents after touching 89.27, the lowest since September 2010.

Interest-rate swaps data compiled by Bloomberg show traders see a 93 percent chance Reserve Bank of Australia Governor Glenn Stevens and his board will lower the overnight cash rate target by 25 basis points to 2.5 percent next week.

China PMI

The Aussie pared losses after a report showed manufacturing strengthened in China, the South Pacific nation’s biggest trading partner.

The Purchasing Managers’ Index (CPMINDX) was at 50.3 in July, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compared with the 49.8 median forecast of analysts in a Bloomberg survey and June’s 50.1 level. Readings above 50 indicate expansion.

A separate PMI reading from HSBC Holdings Plc and Markit Economics was 47.7 for July, matching the median economists’ estimate.

“People are waiting for that number which tells us China is collapsing,” Stephen Green, head of Greater China research at Standard Chartered Plc, said in a Bloomberg Television interview. “The market is sort of poised to just respond to anything that’s really, really, really negative and just sell everything. And as soon as you get something that’s mildly OK, then the market buys that.”

FOMC Statement

The Dollar Index fell to a six-week low yesterday after the Federal Open Market Committee kept its monthly purchases of Treasuries and mortgage securities unchanged at $85 billion, while warning that persistently low inflation could hamper the recovery. It repeated a pledge to continue stimulus until the U.S. labor market outlook has improved substantially.

“The FOMC statement was a bit more dovish given that they mentioned some downside risks from inflation,” said Yuki Sakasai, a foreign-exchange strategist at Barclays Plc in New York. “But where we go from here will depend on the jobs numbers, and of course the inflation data.”

The gauge, which IntercontinentalExchange Inc. uses to track the greenback versus currencies of six major U.S. trading partners, rose 0.5 percent to 81.871 from yesterday, when it fell to as low as 81.407, a level unseen since June 20.

U.S. employers probably added 185,000 jobs in July, following a 195,000 gain in June, according to the median forecast of economists in a Bloomberg poll ahead of Labor Department data due on Aug. 2. The jobless rate probably fell to 7.5 percent from 7.6 percent.

Half of the 54 economists surveyed by Bloomberg News last month said the Fed may curb its monthly purchases to a total of $65 billion at its Sept. 17-18 meeting.

To contact the reporters on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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