Yen Falls as Manufacturing Data Damps Safety Demand

The yen dropped to a one-month low against the dollar as reports showed manufacturing in China and Europe expanded and the threat of imminent military action against Syria eased, damping demand for haven currencies.

Japan’s currency slid at least 0.7 percent versus all of its 16 major peers as Prime Minister Shinzo Abe won backing for a sales-tax increase, signaling he is making progress on policies that have helped weaken the yen. Australia’s dollar gained on China’s improving growth prospects. The pound rose to a two-month high versus the euro after a gauge of U.K. manufacturing increased more than analysts forecast last month.

“The improvement in global investor risk sentiment is leading to the reversal of the yen’s recent safe-haven driven gains,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The surveys are helping to reassure investors that the economic slowdown in China at least appears to have stabilized in the near term.”

The yen slid 1.2 percent to 99.35 per dollar at 4:42 p.m. London time after reaching 99.43, the weakest level since Aug. 2. Japan’s currency depreciated 0.9 percent to 131 per euro. The euro weakened 0.3 percent to $1.3186.

U.S. financial markets are closed today for a public holiday.

Chinese Output

The yen weakened after China’s National Bureau of Statistics and China Federation of Logistics said yesterday their Purchasing Managers’ Index for manufacturing rose to 51 last month, the highest since April 2012. HSBC Holdings Plc and Markit Economics’ PMI for China rose to 50.1 last month from 47.7 in July, final data released today showed. A reading above 50 indicates growth.

An index based on a survey of euro-region purchasing managers in the manufacturing industry increased to 51.4 from 50.3 in July, London-based Markit Economics said. That’s above an estimate of 51.3 published on Aug. 22, and the highest reading since June 2011.

Japan’s Abe is trying to sustain an economic recovery driven by fiscal and monetary stimulus as he moves on to tackling changes such as deregulation needed for a longer-term revival in Japan.

A majority of those in seven consultative panels favored proceeding with an increase of the 5 percent sales tax in April, Economy Minister Akira Amari told reporters on Aug. 31 after the final group met. Members of the panels, which were set up by the government, called for “sufficient stimulus,” he said.

Sales Tax

Abe said today he’ll make a decision on the tax this autumn, taking the opinions of the panels into account.

“I expect a sales-tax hike to sustain optimism toward Abenomics, resulting in a weaker yen,” said Kengo Suzuki, the chief currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest bank, referring to Abe’s economic policies. “For Japan’s monetary, fiscal and growth policies to be properly executed, a higher levy is needed, and an increase in the sales tax can be seen as the key to these three arrows of Abenomics.”

Traders increased bets the yen will weaken, according to data from the Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a decline in the currency compared with those on a gain was 78,353 on Aug. 27, compared with 71,721 a week earlier.

The Aussie dollar advanced for the first time in six days versus the greenback, gaining 0.9 percent to 89.78 U.S. cents, boosted by the Chinese data. China is Australia’s biggest trading partner.

Pound Gains

The pound climbed as Markit Economics and the Chartered Institute of Purchasing and Supply said U.K. manufacturing output, based on a survey of purchasing managers, rose to 57.2 in August from a revised 54.8 a month earlier. The median estimate in a Bloomberg survey of economists was for a reading of 55.

The pound appreciated 0.5 percent to 84.86 pence per euro after reaching 84.72 pence, the strongest level since June 26. Sterling rose 0.2 percent to $1.5538.

The U.S. currency fell against most of its major counterparts as President Barack Obama said he would seek approval from Congress for military action against Syria.

The dollar will rise to 103 yen and $1.28 per euro by the end of the year, analysts in Bloomberg surveys forecast.

“We’re pretty comfortable with dollar-yen at 105 in a year’s time,” said Nick Verdi, a currency strategist at Barclays Plc in Singapore. “What everybody is pinning their hopes on is a U.S.-led recovery.”

India’s rupee fell as a report showed the nation’s economic growth slowed more than analysts predicted. The currency weakened 0.5 percent to 66.015 per dollar, according to prices from local banks compiled by Bloomberg.

Indonesia’s rupiah depreciated to the lowest level in more than four years after the country reported a record trade deficit for July. The rupiah slid as much 0.5 percent to 10,979 per dollar, the weakest since April 2009.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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