Yen Falls First Time in 3 Days as Haven Demand Ebbs; Lira Gains

Foreign Exchange Brokerage
U.S. and Japanese national flags sit on display in front of a monitor displaying a graph of the movement of the yen against the U.S. dollar at a foreign exchange brokerage in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

The yen declined for the first time in three days as demand for the safest assets eased amid a better-than-projected financial forecast from Caterpillar Inc. and a gain in a gauge of business confidence in Germany.

Japan’s currency touched the strongest level versus the dollar in almost seven weeks earlier after emerging-market assets dropped last week. The yen reversed gains as Turkey’s lira rebounded from a record low after the central bank said it would stabilize prices and South Africa’s rand pared losses. Australia’s dollar climbed, and U.S. Treasuries fell.

“The yen is always a bellwether for these types of issues,” Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a telephone interview. “If anything, the sore points in China and Turkey have been seemingly addressed for the time being. I don’t think you can be relaxed, there are still a lot of other things going on.”

Japan’s currency weakened 0.2 percent to 102.55 per U.S. dollar at 5 p.m. New York time, after touching 101.77, the strongest level since Dec. 6. The euro appreciated 0.2 percent to 140.22 yen after touching 139.20 yen, the weakest level since Dec. 6. The 18-nation shared currency traded little changed at $1.3673 after rising to $1.3717 and falling to $1.3653.

Foreign-exchange rates across the developing world tumbled last week as a contraction in Chinese manufacturing added to investor concern that the Federal Reserve’s withdrawal of monetary stimulus will hamper economic growth. The yen rallied last week the most versus the dollar since August as demand for haven assets climbed, while the dollar gained versus most other major peers. The Fed opens a two-day policy meeting tomorrow.

‘Mad Rush’

The currency market’s “mad rush” into emerging-market currencies was due to correct after overextending, according to Societe Generale SA’s Kit Juckes.

“We’ve had an unprecedented period since 2009 where money has been pushed out of developed markets toward anywhere it can get growth or carry,” Juckes, a global strategist at Societe Generale in London, said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee. “Some of that just has to get corrected. The push of money blindly away from negative real returns in our markets -- that’s over.”

India’s currency slumped to its weakest level since November as developing-nation equities extended their biggest decline since November. The rupee fell amid concern the selloff in emerging-market assets will worsen. The currency dropped 0.7 percent to 63.10 per dollar and touched 63.31. Indonesia’s rupiah sank versus most of 31 major peers, falling 0.4 percent to 12,230 per dollar.

Rand, Lira

The South African rand slid as much as 1.5 percent to 11.2541 per dollar, the weakest level since October 2008, before trading at 11.1163, down 0.3 percent.

Turkey’s lira rallied 2.3 percent to 2.2833 per dollar, erasing a decline that took it to a record 2.3900, after the Turkish central bank said it would “take the necessary policy measures” to stabilize prices at an extraordinary meeting tomorrow.

Australia’s dollar rose for the first time in three days, advancing 0.6 percent to 87.39 U.S. cents after reaching 86.60 cents on Jan. 24, the weakest since July 2010.

The yen weakened after a Japanese Finance Ministry report showed the nation’s trade shortfall widened in 2013 to a record 11.5 trillion yen ($112 billion). That’s almost double the previous year’s gap as energy shipments and weakness in the currency pumped up the import bill.

Yield Differentials

The yen fell versus the U.S. dollar amid a widening of interest-rate differentials. The yield on 10-year U.S. Treasury bonds increased three basis points, or 0.03 percentage point, to 2.75 percent. The securities’ rate premium over comparable Japanese government debt was 211 basis points, versus the average of 163 basis points over the past five years.

The Japanese currency has gained 3.8 percent this year in the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes as the selloff in emerging markets fueled demand for haven assets. The euro has risen 0.3 percent, the Swiss franc has gained 0.4 percent and the dollar has strengthened 0.8 percent.

The dollar outperformed the yen and the Swiss franc as Peoria, Illinois-based Caterpillar, the largest maker of mining and construction equipment, forecast earnings and revenue for 2014 that topped analysts’ estimates as the recovery in the U.S. building industry spurs sales of bulldozers and excavators.

The Bloomberg Dollar Spot Index was little changed at 1,026.38 after declining as much as 0.1 percent and increasing 0.1 percent.

Fed Meeting

The U.S central bank’s policy-setting Federal Open Market Committee will reduce monthly asset purchases, now at $75 billion, by $10 billion at each meeting to end the stimulus program this year, according to the median forecasts of analysts in a Jan. 10 Bloomberg News survey.

The euro strengthened earlier against the yen as the Ifo institute’s German business climate index, based on a survey of 7,000 executives, advanced to 110.6 in January from 109.5 in December. Economists predicted an increase to 110, according to the median of 45 estimates in a Bloomberg survey.

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