Yen Reaches Record High Against Dollar on Repatriation Demand

Yen Hits Highest Against Dollar Since 1995
Japanese yen notes and U.S. dollar notes are arranged for a photograph in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

The yen rose to a post-World War II high versus the dollar as risk of radiation leaks from crippled nuclear plants in Japan added to speculation insurers and investors will redeem overseas assets to pay for damages.

The four-day rally in the yen prompted speculation the Bank of Japan may intervene for the first time since September in an effort to counter repatriation flows and shore up the competitiveness of Japanese companies. The euro fell for the first time in four days after a Portugal credit downgrade revived concern about the region’s debt crisis.

“Speculators are becoming increasingly confident about pushing the currency pair around,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “Everyone is curious to find out why they chose not to defend the 80 level. Wow. That’s all I have to say, just wow.”

The yen gained to 77.48 per dollar at 5:42 p.m. in New York after passing its post-World War II high of 79.75 reached in April 1995, from 80.72 yesterday.

“We’ve breached 79.75 and there was enormous support there initially and that’s given way with stop losses on a New York close in extremely thin conditions with absolutely no signs of the Bank of Japan and the selling has just snow-balled,” said Kurt Magnus, executive director of currency sales at Nomura Holdings Inc. in Sydney.

Market Moves

The Standard & Poor’s 500 Index dropped, erasing its 2011 gain, and Treasuries rallied. The S&P 500 fell 2 percent to 1,256.88 and the 10-year U.S. Treasury yield fell as low as 3.14 percent, the least since Dec. 8.

“There are real concerns that if it’s a disorderly move down in dollar-yen, the BOJ may start to intervene,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. “This time around there will be support for unilateral intervention. In order for Japan to regain competitiveness, they need a weaker yen. They can now build an economic case for that.”

In an attempt to slow the yen’s 15 percent appreciation last year, the Bank of Japan sold 2 trillion yen ($25 billion) in Sptember in the nation’s first currency market intervention since 2004. Governments and central banks intervene by selling or buying currencies to influence prices.

‘Destabilizing Event’

“A surge in the yen could be a destabilizing event,” said Robert Sinche, global head of foreign exchange strategy at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut. “I would expect that they would intervene and that U.S. and European authorities would be fine with them intervening here. If there’s activity required now, it would be the Federal Reserve acting on behalf of the Bank of Japan.”

The Australian and New Zealand dollars dropped to the weakest this year against the greenback as concerns about the impact of the nuclear disaster in Japan spurred investors to sell riskier assets.

The Australian dollar fell to as low as 97.35 U.S. cents, the least since Dec. 2, before trading at 97.89 cents as of 8:32 a.m. in Sydney. The kiwi dollar slid to 71.30 U.S. cents, the lowest since Sept. 2.

The Aussie tumbled 3.5 percent to 75.56 yen, while the New Zealand currency dropped 4.5 percent to 55.39 yen.

Krona Drop

Sweden’s krona dropped against most major currencies, falling 1.3 percent to 6.4826 per dollar and 2.7 percent to 12.28 yen. Mexico’s peso dropped 1.3 percent to 12.1503 per dollar and the British pound lost 0.3 percent to $1.6030.

Norway’s krone earlier gained against the dollar after Norges Bank left its key rate at 2 percent and Deputy Governor Jan F. Qvigstad said policy makers raised their forecast for future increases “slightly.”

The krone dropped 0.1 percent to 5.6683 per dollar and weakened 1.5 percent to 14.04 yen.

The euro fell 0.7 percent to $1.3897 per dollar from $1.3998.

The euro dropped after Portugal was cut two steps by Moody’s Investors Service yesterday to A3, four levels from so-called junk status. The company cited the nation’s “less supportive” economic environment and said its outlook remained negative given Portugal’s “subdued growth prospects” and risks that the government won’t be able to implement deficit-reduction plans.

Swiss Record

The Swiss franc advanced to a record against the greenback on investor demand for a refuge amid turmoil in the Middle East and Japan. Bahrain closed its stock exchange as clashes between security forces and anti-government protesters intensified.

Concern that violence may spread to neighboring Saudi Arabia, the world’s biggest oil producer, damped demand for higher-yielding assets.

“The focus will remain on Bahrain as well as Japan,” said Kathy Lien, director of currency research with online currency trader GFT Forex in New York. “For the time being, risk aversion will still be something that’s more dominant in the market right now.”

The franc appreciated 0.9 percent to 90.77 centimes per dollar after touching 90.72, the strongest level since at least 1971, when Bloomberg records begin.

Carry Trade

The yen may continue to strengthen as investors unwind carry trades amid reduced demand for assets from higher-yielding countries. In a carry trade, investors borrow where yields are low, such as in Japan, to fund purchases in higher-returning countries.

The carry trade of borrowing in yen and selling it to buy the currencies of Australia, Norway, New Zealand and Brazil has lost 45 percent this month, according to data compiled by Bloomberg. That compares with a loss of 22 percent using the U.S. currency and return of 8.3 percent in the yen in January and February.

Japanese investors own about $3.9 billion of rand-based Eurobonds, known as uridashi, more than the $3 billion of Brazilian reais and $765 million in Turkish lira, according to data compiled by Bloomberg. Japan’s mutual funds held 2.8 trillion yen ($34.6 billion) in Brazilian stocks and bonds as their fourth-largest foreign assets, leaving the real among the most “vulnerable” during the selloff, HSBC Holdings Plc said.

Yen Gains

The yen has strengthened 7 percent since Japan’s strongest earthquake on record last week caused a 7-meter (23 foot) tsunami that engulfed the northeast coast and damaged nuclear reactors.

The Bank of Japan added 5 trillion yen in one-day operations today. The BOJ has added 28 trillion yen to the financial system since March 14 after Governor Masaaki Shirakawa pledged to keep pumping cash into the economy to stabilize markets.

The currency touched 80.22 on Nov. 1 as the Federal Reserve announced a second round of so-called quantitative easing to purchase $600 billion in Treasuries. The U.S. is Japan’s second biggest trading partner.

The currency reached its postwar high three months after Japan’s 6.9-magnitude Kobe earthquake, on speculation that bilateral talks to open up Japan’s auto market to U.S. exports would fail. Nearly two-thirds of the U.S.’s $66 billion trade deficit with Japan in 1994 came from cars and auto parts, and the Clinton administration repeated threats in April 1995 that unsuccessful negotiations might lead the U.S. to impose sanctions.

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