Yen Gains Versus Euro, Dollar Before German Bailout Vote

The yen rose against all of its 16 major counterparts as concern Europe’s leaders will be slow to implement measures to stem the region’s debt crisis supported demand for Japan’s currency as a haven.

The yen climbed for a second day against the euro before German lawmakers vote on a bailout for Spanish lenders. Chancellor Angela Merkel called on fellow leaders to work harder to make Europe succeed without waiting for German help. The dollar slid to the lowest in 2 1/2 months versus its Australian counterpart before U.S. data today that may show claims for jobless benefits climbed, boosting prospects the Federal Reserve will add to easing measures that debase the greenback.

“Nothing has been resolved on Europe’s debt crisis and it won’t end any time soon,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency-margin company. “The yen is being bought in such a negative situation because there are few other choices.”

The yen gained 0.3 percent to 96.47 per euro as of 6:31 a.m. in London. It touched 96.17 on July 16, the strongest level since June 1. The 17-nation euro bought $1.2280 from $1.2284 yesterday. The dollar touched 78.47 yen, the weakest since June 5, before trading at 78.55 yen, 0.3 percent below yesterday’s close. The U.S. currency lost 0.2 percent to $1.0387 per Australian dollar after earlier reaching $1.0398, the weakest since May 1.

‘No Liability’

German lawmakers are due to vote in a special session of the lower house today in Berlin after the Finance Ministry asked parliament in a July 16 letter to support aid of as much as 100 billion euros ($122.8 billion) for Spain’s banks. The money would come from a temporary backstop, the European Financial Stability Facility, and then from the European Stability Mechanism that has yet to be set up.

Merkel indicated in an interview posted on her Christian Democratic Union party’s website yesterday that she won’t take on additional burdens to stem the euro area’s debt crisis without stronger checks on countries’ budgets. The principle of “no liability unless we can really exercise control” is shared by “a large part” of the German population, she said.

FX Prime’s Ueda said the euro may fall to $1.18 and 93 yen by the end of September.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, declined to 82.851, the lowest since July 6.

Figures from the U.S. Labor Department today may show initial jobless claims increased to 365,000 in the week ended July 14 from 350,000 in the previous period, according to the median estimate in a Bloomberg News survey.

Fed Prepared

The Fed said in its Beige Book business survey yesterday the economy expanded at a “modest to moderate” pace in June and early July. Fed Chairman Ben S. Bernanke said in testimony to the House Financial Services Committee yesterday in Washington that the central bank is “prepared to take further action as appropriate to promote a stronger economic recovery”

The euro declined 2.7 percent in the past month, the worst performance alongside the Swiss franc among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar climbed 0.8 percent and the yen gained 1.4 percent. The so-called Aussie posted the biggest advance in the same period, rising 3 percent.

The MSCI Asia Pacific Index of shares added 1.5 percent, while a gauge of currency volatility dropped for a seventh day to the lowest in 4 1/2 years.

Volatility Low

The implied volatility of three-month options on Group of Seven currencies fell to 8.67 percent, according to a JPMorgan Chase & Co. measure, the lowest since November 2007. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profits.

The pound was little changed at $1.5656. It lost as much as 0.5 percent yesterday after minutes of the Bank of England’s meeting this month showed the decision to keep its benchmark interest rate at a record low 0.5 percent was unanimous.

U.K. retail sales including auto fuel probably climbed 0.6 percent last month after a 1.4 percent advance in June, according to a Bloomberg News poll before today’s report.

“The stars are aligning in the direction of growing pound pressure over coming weeks,” Mitul Kotecha, head of global currency strategy at Credit Agricole Corporate & Investment Bank in Hong Kong, wrote in a note to today. The currency may drop to technical support around $1.5518, he wrote. Support is an area where buy orders may be clustered.

China’s yuan was within 0.1 percent of a one-week high. The country needs to adopt a “moderately easing” policy when growth is below 8 percent, the Shanghai Securities News reported today, citing Fan Jianping, chief economist at the State Information Center.

The yuan traded at 6.3710 per dollar from 6.3702 yesterday, when it touched 6.3681, the strongest level since July 11, according to the China Foreign Exchange Trade System.

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