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Yen Advances on Speculation Austerity Will Damp Economic Growth

The euro has advanced most since May 22 2009. Photographer: Chris Ratcliffe/Bloomberg
The euro has advanced most since May 22 2009. Photographer: Chris Ratcliffe/Bloomberg

June 18 (Bloomberg) -- The yen advanced against the euro and the dollar amid concern spending cuts to contain Europe’s debt crisis will damp global economic growth, boosting demand for the safety of Japan’s currency.

The yen climbed against all but one of its 16 most-traded peers after reports in the U.S. yesterday showed a drop in consumer prices and an increase in jobless claims. Japan’s currency also gained for a fifth day versus the dollar as the nation’s leaders pledged to reduce public debt. The euro headed for its biggest weekly gain against the greenback this year after increased demand yesterday at a Spanish bond sale.

There are “concerns over potential negative spillover effects from euro-zone debt problems on global growth,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The U.S. economy appears set for a growth slowdown.”

The yen gained 0.4 percent to 90.62 per dollar at 7:32 a.m. in New York, from 91.01 yesterday. It earlier strengthened to 90.44, the strongest since May 27. The currency traded at 112.15 per euro, from 112.76. The euro slipped to $1.2373 from $1.2389 and is headed for a 2.2 percent gain on the week.

The U.S. economy will stagnate in the second half of the year as households, businesses and state and local governments trim debt, according to John Herrmann of State Street Global Markets in Boston.

“There is an incredible amount of deleveraging going on in the economy,” Herrmann, a senior fixed-income strategy, said yesterday in an interview on Bloomberg Radio with Tom Keene. “Organic growth in the economy is likely to decelerate” as government stimulus fades and temporary census workers complete their contracts, he said.

Japan’s Debt

Japan’s currency was poised for a second weekly gain versus the dollar after Japanese Prime Minister Naoto Kan pledged to cut the world’s largest public debt. Kan said he’d consider an opposition party proposal to raise the consumption tax.

“The structural reforms appear to be aimed at securing funding sources” for Japan, said Yuji Saito, director of the currency department in Tokyo at Credit Agricole Corporate and Investment Bank, a unit of France’s largest lender by branches. “This is likely to be positive for the yen.”

The ruling Democratic Party of Japan, in an election document distributed yesterday, called for cross-party talks on raising the country’s 5 percent consumption tax. Japan pledged in its medium-term economic plan today to reduce its corporate tax of 40.7 percent and nurture the environment and healthcare industries to help end two decades of economic stagnation.

‘Unless We Work’

“Unless we work on fiscal rehabilitation, an international organization such as the International Monetary Fund could control our fiscal management,” Kan said yesterday. “We must rehabilitate our finances with our own power without relying on other countries.”

The euro earlier touched a three-week high versus the greenback as increased demand at a Spanish bond auction yesterday spurred optimism that nations in the region can raise sufficient funds.

“The market will likely try to hold on to what has been achieved in the euro this week,” said Steven Barrow, head of Group of 10 foreign-exchange research at Standard Bank Plc in London. “But I take no confidence in the idea that markets are ignoring the bad news out of the euro zone.”

To contact the reporter on this story: Bo Nielsen in Copenhagen at; Ron Harui in Singapore at

To contact the editor responsible for this story: Daniel Tilles at

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