Yen Strengthens From Four-Month Low on Demand for Safety

Yen Set for Biggest Weekly Drop in 2 Months on BOJ Easing Bets
The yen traded at 80.21 per dollar at 9:03 a.m. in Tokyo after earlier touching 80.38, the weakest since June 25. It has lost 1.1 percent this week, poised for the biggest five-day slide since the period ended Aug. 17. Photographer: Kiyoshi Ota/Bloomberg

The yen rose from a four-month low against the dollar as disappointing U.S. corporate results and record unemployment in Spain boosted the allure of the relative safety of Japan’s currency.

The Japanese currency still had a five-day loss versus the greenback amid bets the Bank of Japan will increase monetary stimulus next week. South Africa’s rand climbed. Europe’s shared currency dropped after Spanish unemployment data showed a record one in four residents was out of work last quarter.

“Given that Japan is a capital exporter, has a very large foreign asset position, if there are rising risks, even for domestic reasons, you tend to see money flowing back,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “The yen is the move that stands out today. The chances are still fairly high that the BOJ goes in for additional easing, so I would not be fully unwinding bets on that just yet.”

Japan’s currency gained 0.8 percent to 79.65 per dollar at 5 p.m. New York time after touching 80.38 earlier, the weakest since June 25. It lost 0.4 percent this week. The yen advanced 0.8 percent to 103.05 per euro and touched 102.69, the strongest since Oct. 16. It rose 0.2 percent on the week. The greenback was little changed at $1.2938 to the 17-nation currency after reaching $1.2883 earlier, the strongest level since Oct. 11. It gained 0.7 percent over the past five days.

Yield Spread

The yen was also supported against the dollar as U.S. Treasuries’ yield advantage over Japan’s government securities narrowed, making American debt less attractive to Asian investors. The yield spread between U.S. and Japanese 10-year bonds shrank to 99 basis points, or 0.99 percentage point, from 104 basis points yesterday.

The Japanese currency typically gains in times of political, financial and economic turmoil because the nation’s historical trade surplus means the nation doesn’t have to rely on overseas lenders.

The Bank of Japan will release a forecast for the nation’s consumer prices and growth on Oct. 30, when it holds its second policy meeting this month. The Nikkei newspaper reported yesterday the central bank may increase its asset-purchase target by 10 trillion yen ($125 billion) to 90 trillion yen.

“Recently the data has been somewhat more mixed, and the market has been concerned about corporate earnings,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York. “The yen had been weakening because of the expectation of the expansion of the balance sheet by the BOJ relative to the Fed, which was also in line with rising expectations for the U.S. economy.”

Dollar Index

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was little changed at 79.997 after earlier rising above its 50-day moving average of 80.155. It touched 80.270, the highest level since Sept. 11.

The gauge may climb to a seven-week high between 80.65 and 80.70 after rising through resistance at 80.20, Niall O’Connor, a New York-based technical analyst at JPMorgan, wrote today in a note to clients. The 200-day moving average is 80.65. Resistance is an area on a chart where sell orders may be clustered.

South Africa’s rand climbed 1.2 percent to 8.6431 to the dollar after the U.S. economy grew more than forecast in the third quarter. America is the second-largest destination for the nation’s exports.

Kiwi Gains

New Zealand’s dollar, nicknamed the kiwi, gained 0.6 percent to 82.29 U.S. cents, approaching the three-week high of 82.43 cents that it reached yesterday.

U.S. gross domestic product expanded at a 2 percent annual pace after gaining 1.3 percent in the prior quarter, Commerce Department figures showed today in Washington. A Bloomberg survey had forecast a rise to 1.8 percent. The economy grew at a 4.1 percent pace from October through December 2011.

The euro has tumbled 2.1 percent this year against nine developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen lost the most, 5.6 percent, and the dollar fell 1.9 percent. New Zealand’s dollar was the biggest winner, rallying 4.5 percent.

Spain’s unemployment rate rose to 25.02 percent, from 24.6 percent in the previous quarter, the National Statistics Institute said in Madrid today. It was the highest level since at least 1976, the year after dictator Francisco Franco’s death led Spain to democracy.

“We’ve seen the euro a bit lower,” said Peter Frank, a foreign-exchange strategist at Banco Bilbao Vizcaya Argentaria SA in London. “What’s been a marginal underperformance in the growth outlook in the euro zone in the past few quarters is turning into quite a big gulf” as other major economies show signs of recovery, he said.

Crisis Outlook

Speculation increased that Europe’s three-year-old sovereign-debt crisis may worsen after German Finance Minister Wolfgang Schaeuble said there are doubts about whether Greece, where the turmoil began, has met its commitments for an international bailout.

“We do want Greece to be able to stay in the euro zone,” Schaeuble said in an e-mail release of an interview to be broadcast Oct. 30 on ZDF television. “But Greece has a lot to do. It’s not decided.”

The Canadian dollar weakened for a fourth day against the greenback, the longest losing streak since May, on concern demand for the nation’s natural resources will decline as investors question global-growth prospects. Futures on crude oil, Canada’s biggest export, touched $85 a barrel in New York, almost a three-month low.

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, weakened 0.2 percent to 99.69 cents per U.S. dollar.

The Standard & Poor’s 500 Index fluctuated as investors watched economic and earnings reports. Goodyear Tire & Rubber Co., the biggest U.S. tiremaker, reported third-quarter profit below analysts’ estimates. Apple Inc. forecast earnings yesterday that fell short of analyst estimates.

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