The yen rose against most of its 16 major counterparts before a German report forecast to show a gauge of business confidence dropped for a fifth month, increasing the allure of the Japanese currency as a haven.
The yen briefly pared gains after Standard & Poor’s said Japan’s lack of progress in tackling its public debt burden risks a credit rating downgrade. The U.S. dollar dropped against the euro as speculation increased that the greenback’s 1.2 percent jump yesterday was excessive.
“The yen is being bought in a flight to quality amid risk-off sentiment,” said Satoshi Okagawa, a Singapore-based senior global-markets analyst at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-largest banking group by market value. “The drop in the euro against the dollar yesterday is prompting a bit of profit taking.”
The yen traded at 103.08 per euro as of 6:35 a.m. in London from 103.15 in New York yesterday. The Japanese currency climbed 0.2 percent to 77.13 per dollar. The greenback slid 0.2 percent to $1.3363 per euro from yesterday, when it advanced to $1.3320, the highest since Oct. 6.
The Ifo institute’s business climate index for Germany dropped to 105.2 in November, the lowest since March 2010, according to the median forecast of economists in a Bloomberg News survey. The Munich-based group will release the data today.
“Europe is headed for a recession,” said Koji Fukaya, chief currency strategist in Tokyo at Credit Suisse Group AG. “Risk aversion and euro weakness are likely to prevail.”
Italy will auction 8 billion euros ($10.7 billion) of bills tomorrow. Yields on Germany’s 10-year debt soared 22.9 basis points, the biggest jump since 1990, amid doubts about the status of the securities as a haven from the region’s crisis.
European Central Bank Governing Council member Ewald Nowotny said Germany’s difficulty in getting bids for its debt auction are an “alarm,” Austria Press Agency reported.
Investor demand for haven assets has driven the dollar and yen to be the best performers on the Bloomberg Correlation-Weighted Currency Indexes in the past month. The U.S. dollar jumped 5.2 percent while the yen has risen 1.9 percent.
The yen briefly pared gains after S&P said it may downgrade Japan’s credit rating, citing the deterioration of the country’s public finances.
Japan Downgrade ‘Closer’
“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa, Singapore-based director of sovereign ratings at S&P, said in an interview. Asked if this means the ratings company is closer to downgrading Japan, he said it “may be right in saying that we’re closer to a downgrade. S&P rates Japan at AA-and has had a negative outlook on the grade since April.
Japan’s 10-year government bonds fell, pushing yields up 1 1/2 basis points to 0.98 percent, the highest since Nov. 7.
Demand for the euro was supported as the common currency’s 14-day relative strength index against the greenback touched 37 yesterday, near the 30 level that signals to some traders that as asset’s price has fallen too quickly and may be set to reverse direction.
‘‘There will be periods where the euro bounces because the market is so short the euro,” said Thomas Harr, head of Asian currency strategy at Standard Chartered Plc in Singapore. “Part of the risk rallies we’ve seen today, a very modest risk rally, is because we have the Thanksgiving holiday in the U.S. and the market is a bit wary of being too short risk into that.”
U.S. financial markets will be closed today for the national holiday.