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Yen Gains Versus Major Peers as Intervention Concern Abates

The yen advanced against most of its major peers as concern waned that the Bank of Japan will act to weaken the currency, easing anxiety among investors seeking a haven from political unease in Europe.

The Japanese currency climbed to its strongest versus the dollar since Oct. 31, when the Ministry of Finance made what’s estimated to be its biggest currency-market intervention to curb gains. The euro fell against the greenback after LCH Clearnet SA increased the extra deposit it demands from clients to trade Italy’s government bonds. Australia’s dollar slid before a report tomorrow forecast to show the nation’s jobless rate rose in October.

“The supply-demand balance for dollar-yen makes it inevitable that it will drift lower unless we see another bout of intervention,” said Adam Cole, head of foreign-exchange strategy in London at Royal Bank of Canada’s RBC Capital Markets unit. “It will have to get back close to lows before they get involved again and even then I don’t think there’s any guarantee. It’s a policy of managing strength in the currency, not engineering weakness.”

The yen appreciated 0.1 percent to 77.69 per dollar at 9:17 a.m. London time. The currency touched 77.54, its strongest since Oct. 31, when it set a post-World War II record of 75.35. The yen advanced 0.4 percent to 107.14 per euro, from 107.52 yesterday. The 17-nation euro fell 0.6 percent to $1.3748, after earlier climbing 0.2 percent.

Barclays Bank Plc and Totan Research Co. estimate that Japan sold a record 8 trillion yen ($103 billion) on Oct. 31.

Offer to Resign

“Dollar-yen will drift lower,” said Tony Allen, global head of foreign-exchange trading in Sydney at Australia & New Zealand Banking Group Ltd. “People positioned themselves for the Bank of Japan to be a little more supportive, but they haven’t been, so the pain trade is down.”

The euro slumped against the dollar after LCH Clearnet SA announced the changes to its margin requirements on its website today. It swung between gains and losses after Italian President Giorgio Napolitano said in an e-mailed statement yesterday that he’d received Prime Minister Silvio Berlusconi’s offer to resign once parliament passes austerity measures in a vote next week.

Italian 10-, five- and two-year government debt yields climbed to a euro-era record yesterday as Berlusconi won a routine parliamentary vote but failed to muster an absolute majority. He obtained only 308 votes in the 630-seat Chamber of Deputies after key lawmakers defected from his party this week to join the opposition.

Political Uncertainty

“Yesterday’s Italian budget approval did little to calm nervous markets,” Adam Myers, a London-based senior foreign-exchange strategist at Credit Agricole Corporate & Investment Bank, wrote in an e-mailed note. “Given outstanding Italian debt is roughly five times the size of Greece, such political uncertainty will only add to euro pressure today until a clear successor emerges.”

Greek Prime Minister George Papandreou’s talks on forming an interim government dragged into a third day as a near-agreement with the biggest opposition party stalled on European Union demands for written commitments.

“Though Berlusconi is committed to go, we’ve no idea what will replace him,” said RBC’s Cole. “And then you have again the negotiations for the replacement Prime Minister in Greece, which seem to have fallen apart overnight, so the two principal areas of uncertainty that have been harming the euro still aren’t resolved.”

Angry Reaction

Antonis Samaras, leader of Greece’s opposition New Democracy party, reacted angrily to a demand from EU officials that he sign up to budget measures required to receive a second financing package of 130 billion euros decided on Oct. 26.

A letter will need to be signed by Papandreou, Samaras, the new prime minister and finance minister, as well as the head of the Greek central bank George Provopoulos, said a Greek government official, who declined to be identified.

“Political instability doesn’t bode well for risk in general and we’ve definitely seen that with Greece,” said David Greene, a senior corporate currency dealer at Western Union Business Solutions, a global payment services network. “The U.S. dollar would be relatively well supported.”

The dollar has appreciated 5.5 percent in the past three months, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has advanced 2.6 percent.

Financial Stress

The greenback tends to strengthen during periods of financial stress due to its status as the world’s reserve currency while the yen tends to gain because Japan’s export-reliant economy doesn’t need foreign capital to balance current accounts -- the broadest measure of trade.

Australia’s dollar slid versus its U.S. and Japanese peers before data that may show the unemployment rate rose to 5.3 percent in October from 5.2 percent the previous month, according to the median forecast of economists in a Bloomberg News survey.

“The markets are still somewhat cautious over the potential for tomorrow’s employment report,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington.

The currency also weakened after China’s statistics bureau said producer prices rose 5 percent in October from a year earlier, less than any of 24 analyst forecasts in a Bloomberg survey. Consumer prices gained 5.5 percent, in line with the median projection in a separate Bloomberg poll.

The Aussie lost 1.1 percent to $1.0277 and dropped 1.2 percent to 79.80 yen.

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