The yen remained stronger against the dollar after a three-day gain on signs Europe’s debt crisis is hurting growth and on bets Japan’s central bank will refrain from adding stimulus to temper the currency’s appreciation.
Japan’s currency touched a one-month high against the euro after Germany’s top court signaled deliberations may be longer on a case that may decide the fate of the region’s bailout mechanism. The 17-nation euro was 0.1 percent from a record low versus Australia’s dollar as data showed German inflation slowed and ahead of a report forecast to show euro-area manufacturing stagnated. Demand for the U.S. dollar was limited before the Federal Reserve releases minutes of its June 20 gathering.
“We do think the BOJ will ease further, but not at this week’s policy meeting,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “That’s going to be a further source of disappointment if indeed that plays out. The yen should strengthen.”
The yen advanced 0.1 percent to 79.36 per dollar at 8:22 a.m. London time. Japan’s currency touched 97.10 per euro, the strongest since June 5, before trading at 97.34, little changed from yesterday’s close in New York.
The euro traded at $1.2267 from $1.2250 yesterday, when it touched $1.2235, the lowest since July 2010. The shared currency slid 0.2 percent to A$1.19950, after yesterday touching A$1.19878, a record low.
Ten of 17 analysts surveyed by Bloomberg News expect no change at the end of the two-day Bank of Japan meeting tomorrow. The central bank last week raised the economic assessment of all nine regions for the first time since October 2009.
Germany’s Federal Constitutional Court in Karlsruhe heard arguments yesterday on whether to put German approval of the European Stability Mechanism and fiscal pact on hold until it rules on the legality. Both houses of parliament approved the new laws on June 29 with a two-thirds majority. German President Joachim Gauck withheld his signature due to legal challenges that were discussed at the hearing.
Court President Andreas Vosskuhle signaled the court may take a more deliberative approach to its initial decision, potentially further delaying the ESM from coming into force.
“Europe could descend into serious confusion if leaders fail to reach an agreement on the ESM,” said Kumiko Gervaise, an analyst in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency margin-trading company. “The yen may strengthen, given the declines we see in stocks.”
The Stoxx Europe 600 Index of shares fell 0.4 percent and the MSCI Asia Pacific Index of stocks dropped as much as 0.6 percent, following a 0.8 percent slide by Standard & Poor’s 500 Index yesterday. Profits for S&P 500 companies fell 1.8 percent in the second quarter, according to analyst estimates compiled by Bloomberg. That would be the first decline since 2009, even as revenue is forecast to rise 2.5 percent.
European finance ministers at a meeting in Brussels this week worked out a way for euro bailout funds to intervene in bond markets and said the first 30 billion euros ($37 billion) of 100 billion euros in rescue loans will start flowing to Spanish banks this month.
The finance ministers gave Spanish Prime Minister Mariano Rajoy’s government an extra year, until 2014, to drive his nation’s budget deficit below the euro limit of 3 percent of gross domestic product.
The officials have provided “another short-term fix but the problem is still there,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. “I would imagine the euro would test new lows. The constant news of crisis just saps business confidence.”
In Germany, a final reading of consumer price inflation in June, calculated using a harmonized European Union method, was at 2 percent, the Federal Statistics Office in Wiesbaden said today. That would be the lowest rate since January 2011 and unchanged from the level indicated in the preliminary reading released June 27.
Industrial production in the euro area probably failed to grow in May after two months of decline, according to median estimate of economists in a Bloomberg survey before the data is reported tomorrow.
The Fed bought $2.3 trillion of bonds in two rounds of so-called quantitative easing, or QE, from December 2008 to June 2011, seeking to cap borrowing costs and stimulate the economy. The central bank today will release minutes of last month’s policy meeting where Chairman Ben S. Bernanke indicated another round of QE remains an option.
“The minutes could serve to refocus the market’s attention on the fact that the Fed again has both hands back on the QE bazooka,” Citigroup Inc. strategists Todd Elmer and Andrew Cox wrote in a report today. “Indications that the Fed’s perception of the balance of risks is shifting should be U.S. dollar negative.”
The Australian dollar may be poised for losses should it fall below $1.0145, according to UBS AG, citing trading patterns.
A breach of $1.0145, which is the mid-point of the currency’s latest rally, will be “the next bearish signal” toward the 38.2 percent Fibonacci retracement of its advance in June to July, Richard Adcock, head of fixed-income technical strategy in London at UBS, wrote in an e-mailed note to clients today.
The retracement level is $1.0044, based on a low of 95.82 U.S. cents reached on June 1 and a high of $1.0329 on July 5, according to data compiled by Bloomberg. The so-called Aussie today added 0.3 percent to $1.0223.
-- With reporting by Kazumi Miura in Tokyo. Editors: Stuart Biggs, Jonathan Annells