Yen Drops as Japanese-Manufacturer Optimism Rises; Aussie Climbs

Dollar Gains Versus Yen Before ISM Factory Data, on BOJ’s Tankan
The dollar has climbed 6.2 percent this year, the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. Photographer: Yuriko Nakao/Bloomberg

The yen fell to a the lowest in more than three weeks against the dollar as the central bank’s Tankan survey showed large manufacturers were the most optimistic in two years, damping demand for safety.

Japan’s currency slid versus most of its major peers as global stocks rose. The dollar briefly extended gains versus the yen after a gauge of U.S. manufacturing rose more than forecast. The euro appreciated after manufacturing in the currency bloc shrank less than forecast. Australia’s dollar rallied from the lowest level in almost three years.

“The Tankan survey was very strong across the board,” Dan Dorrow, head of research at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. “It’s just one more piece of data in the recent uptrend, which is good news for growth for Japan. In the last couple of weeks, the yen has been weakening in line with good news for the Japanese economy.”

The yen lost 0.5 percent to 99.66 per dollar at 5 p.m. in New York and reached 99.86, the weakest level since June 5 on an intraday basis. It closed weaker than its 50-day moving average for the first time since June 4. Japan’s currency declined 1 percent to 130.19 per euro and touched 130.25, the least since June 11. The euro rose 0.4 percent to $1.3064.

The Australian dollar advanced versus all of its 16 most-traded counterparts, rebounding from the weakest since September 2010 versus the greenback, on speculation the South Pacific currency’s biggest quarterly decline in almost five years was excessive and amid bets the Reserve Bank of Australia will refrain from cutting its 2.75 percent benchmark rate tomorrow. The Aussie touched 91.10 U.S. cents before jumping 1.1 percent to 92.38 cents. It lost 12 percent from April through June.

Rand Falls

South Africa’s rand dropped for the first time in three days as evidence of an economic slowdown in China, the country’s biggest trading partner, dimmed export prospects. A purchasing managers’ index from HSBC Holdings Plc and Markit Economics was

48.2, the weakest since September. Readings above 50 signal growth. The currency weakened 0.6 percent to 9.9363 per dollar.

The yen approached 100 per dollar for the first time since June 5 as the Tankan index of sentiment improved to 4 in the second quarter, the highest since March 2011, from minus 8 in the previous period, the central bank said. Readings above zero mean optimists outnumber pessimists. The Nikkei-225 Stock Average climbed 1.3 percent, and the Standard & Poor’s 500 Index rose as much as 1.3 percent before paring gains to 0.5 percent.

Carry Trade

Tankan “goes into the thematic that people want to hear, which is that the yen is weakening,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview. “The funding for the carry trade is essentially the yen now. The tendency therefore is for dollar-yen to tend to want to move higher and people will try to find whatever excuse they want to try to justify that move.”

In the carry trade, investors borrow in low-interest-rate currencies to buy higher-yielding assets. Japan’s benchmark rate is virtually zero.

JPMorgan Chase & Co.’s Group of Seven Volatility Index, based on currency-option premiums, fell to 10.95 percent, from

11.02 percent on June 28. The gauge surged 19 percent in the second quarter. It climbed to 11.96 percent on June 24, the highest since January 2012, after Federal Reserve Chairman Ben S. Bernanke said on June 19 the U.S. central bank may start reducing bond purchases this year.

“The yen became weak because the volatility became lower,” said Hidetoshi Honda, a currency strategist at Mizuho Corporate Bank Ltd. in London.

Japan’s currency has declined 9 percent this year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 5 percent, and the dollar led the winners, gaining 6.1 percent.

Euro Recommendation

The euro extended a gain versus the dollar after Thomas Stolper, the London-based chief currency strategist at Goldman Sachs Group Inc., recommended investors buy the currency with an initial target at $1.35. Stolper cited an improved growth outlook for the euro region periphery and a strong balance-of-payments position for the area as a whole.

The 17-nation currency gained earlier versus the dollar as Markit Economics said its gauge of manufacturing in the 17-nation area rose to 48.8 last month from 48.3 in May. That was above an initial estimate of 48.7 on June 20.

The dollar gained for a third day versus the yen as the Institute for Supply Management’s U.S. manufacturing index rose to 50.9 in June from 49 in May, the Tempe, Arizona-based group said. A Bloomberg survey forecast an increase to 50.5.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $31 billion, compared with $29.4 billion on June 28, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $8.4 billion, the largest share of trades at 29 percent. Euro-dollar options totaled $2.7 billion, or 8.7 percent.

Dollar-yen options trading was 31 percent above the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 3 percent below average.

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