Yen Gains as Europe Debt Woes, Growth Outlook Boosts Safety Bid

Euro Falls Versus Yen Amid Debt Concerns
The euro weakened to 103.89 yen as of 9:46 a.m. in Tokyo from 104.34 yen in New York yesterday, having lost 5.7 percent this month. Photographer: Chris Ratcliffe/Bloomberg

The yen rose on reports some euro-area nations are pushing Greek bondholders to accept larger writedowns and as Germany said the nation’s second bailout package may be revised, boosting demand for a refuge.

The euro headed for a fifth consecutive monthly decline against the yen after the Financial Times reported yesterday that some euro-area countries want private creditors to take bigger losses on their Greek bond holdings. The shared currency advanced against the dollar for a fourth day after European Commission President Jose Barroso called for faster creation of a permanent euro rescue fund. China’s yuan strengthened on bets policy makers will allow currency gains to curb inflation.

“Investors are nervous so any new statements from politicians and policy makers will move the market,” said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “There’s still a lot of uncertainty about the euro-zone debt crisis and the state of the global economy so investors are favoring safe-haven currencies like the yen.”

The yen strengthened 0.1 percent to 104.2 per euro at 11:08 a.m. in London, taking its advance this month to 5.3 percent. The Japanese currency appreciated 0.5 percent to 76.40 per dollar. The euro rose 0.5 percent to $1.3653.

German Chancellor Angela Merkel said she’s waiting for a report from a team of officials from the European Union, European Central Bank and International Monetary Fund on Greece’s progress before deciding whether a second financing package for the country agreed on July 21 needs to be revised.

Greek Default

“We need to wait to see what the expert mission, the troika, determines and what it will say in relation to whether there needs to be new talks or not,” Merkel told Athens-based state broadcaster NET in an interview.

Germany still privately anticipates that the Mediterranean nation will default on its debt as early as this year, Bild reported Merkel as saying earlier at a meeting of Christian Democratic lawmakers, citing unidentified participants.

“We should do everything possible to accelerate the entry into force of the ESM,” Barroso told the European Parliament in Strasbourg, France today, referring to the European Stability Mechanism. He warned that the debt crisis had reached a “serious” stage and ruled out the ouster of Greece from the euro.

Due to be set up in mid-2013, the ESM will wield a 500 billion-euro war chest that could be used more flexibly than the current guarantee-based temporary financial backstop.

“The focus is still very much on matters in Europe and the progress being made to resolve the debt crisis,” said Gavin Friend, a markets strategist at National Australia Bank Ltd. in London. “The yen is finding support from the safe-haven bid.”

Recession Concern

Japan’s currency may climb to as strong as 75 per dollar “within weeks” as investors continue to purchase the currency as a refuge from the euro-area debt crisis, Friend said.

France’s statistics office confirmed that gross domestic product was unchanged in the second quarter from the preceding three-month period. That’s in line with the initial estimate reported last month. Bookings for U.S. durable goods, which are meant to last at least three years, dropped 0.2 percent last month, according to a Bloomberg News survey of economists before today’s report.

Most advanced economies are entering into a recession while the U.S. is already in the throes of an economic contraction, Nouriel Roubini, co-founder and chairman of Roubini Global Economics LLC, said in a panel discussion yesterday at the Bloomberg Dealmakers Summit in New York.

ECB Rates

The European Central Bank is likely to cut its benchmark interest rate, “with an increasing probability of a euro-zone recession unfolding in early 2012,” Robert Sinche, the global head of currency strategy for Royal Bank of Scotland in Stamford, Connecticut, wrote in a research note yesterday. “Reflecting this lower policy rate profile now expected from the ECB, we are lowering the euro-dollar forecast profile by 3 cents through the end of 2012.”

The euro will finish this year at $1.33 and end 2012 at $1.41, the bank forecasts.

China’s yuan climbed after the People’s Bank of China set its daily reference rate at the strongest level since July 2005. The nation’s consumer prices rose 6.2 percent in August from a year earlier after a 6.5 percent increase in July.

“Today’s fixing reflects China’s determination to tame inflation with a stronger currency,” said Edmond Law, deputy head of foreign exchange at BWC Capital Markets in Hong Kong. “The inflation slowdown in August was matched by the yuan’s gain for the same period. Yuan appreciation has proved useful in reining in prices.”

The yuan strengthened to 6.3938 per dollar from 6.3992, the biggest gain since Sept. 16.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE