Yen Advances as Aso Damps Bets on Corporate-Tax Cut; Pound Gains
The yen advanced versus the dollar, heading for its second weekly gain, after comments by Japan’s Finance Minister Taro Aso damped bets the government will cut corporate taxes, boosting demand for the currency as a haven.
Japan’s currency gained as inflation in the country accelerated to the fastest pace since 2008 in August. The euro rose versus most of its major counterparts as economic data in the region exceeded forecasts in September. The pound rose against the dollar after Bank of England Governor Mark Carney told a U.K. newspaper he sees no case for further stimulus. The greenback was weaker amid concern a U.S. budget deadlock will shut down the government of the world’s largest economy.
“The yen is up amid rising inflation that could ease the Bank of Japan’s burden and as the finance minister suggested a corporate tax cut still needs to be evaluated,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS), wrote today in a client note.
The yen appreciated 0.8 percent to 98.24 per dollar at 5:02 p.m. New York time. It strengthened 0.5 percent to 132.86 per euro. The 17-nation currency added 0.2 percent to $1.3522 per dollar.
The New Zealand dollar has gained 7.1 percent versus the greenback this month, while the yen has declined 0.1 percent.
This quarter, the kiwi has led all major gainers with a 6.9 percent increase, while the worst-performing South African rand has slipped 2.1 percent. Denmark’s krone is the best-performing currency in 2013 and the rand has plunged 16 percent.
South Korea’s won gained versus most of its major peers as data showed foreign funds pumped money into the nation’s stocks.
The won rose 0.1 percent to 1,073.65 per dollar, having surged 3.8 percent in September, the biggest monthly gain in almost two years. Overseas investors bought $6.8 billion more South Korean equities than they sold this month, exchange data show.
South Africa’s rand slid for a fourth day and headed for its longest losing streak in almost two months against the dollar as companies in the country demanded foreign currency to pay for imports. The rand depreciated 1 percent to 10.0886 per dollar after touching the weakest level since Sept. 6.
Consumer prices in Japan, excluding fresh food, increased 0.8 percent from a year earlier, the statistics bureau said today in Tokyo. The median forecast of 30 economists surveyed by Bloomberg News was for a gain of 0.7 percent. Stripping out energy and perishables, prices fell 0.1 percent.
Aso told reporters today that funding sources would be needed if corporate tax rates were to be reduced. Kyodo News reported yesterday that the government of Prime Minister Shinzo Abe had pledged to begin a study on cutting the levy.
“The comment today that there may not be a tax cut is risk-negative, which has been a negative for dollar-yen,” Dan Dorrow, head of research at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. “There have also been uncertainties over the last week or so about a potential Washington shutdown, and the increase in risk has been yen-positive.”
The U.S. Senate passed a short-term spending bill, three days before federal spending authority runs out and a few weeks until the country hits its borrowing limit.
The yen tends to strengthen during periods of financial and economic turmoil because Japan isn’t reliant on foreign capital to fund its deficits.
An index of executive and consumer sentiment in the euro zone rose for a fifth month to 96.9 from a revised 95.3 in August, the European Commission in Brussels said today. That beat the median estimate of 96 in a Bloomberg survey of 26 economists.
Carney told the Yorkshire Post that the Bank of England would consider expanding its asset-purchase target, known as quantitative easing, should the economic recovery falter.
“Given the recovery has strengthened and broadened, I don’t see a case for quantitative easing and I have not supported it,” he said, according to the newspaper.
The pound increased 0.6 percent to $1.6139 after climbing to $1.6163 on Sept. 18, the highest since Jan. 11.
“This sits with the tone we’ve seen recently from the Bank of England, where there was an absence of very dovish rhetoric,” said Jane Foley, senior currency strategist at Rabobank International in London. “The message is that there may be further asset purchases should the recovery stall, but the data suggest that things are returning to normal. The market has quashed most of its hopes that there could be more QE,” supporting the pound.
The greenback was lower this week as investors weighed whether the Federal Reserve will reduce its bond purchases, which tend to weaken the currency. Minneapolis Fed President Narayana Kocherlakota, a voter on policy next year, said yesterday that the central bank must do “whatever it takes” to strengthen a jobs market that is healing too slowly.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, fell 0.3 percent to 1,012.75, leaving its monthly decline at 2.1 percent.
Trading in over-the-counter foreign-exchange options totaled $25.7 billion, from $23.5 billion yesterday, 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 $8.8 billion, the largest share of trades at 34 percent. Options on the euro-dollar rate totaled $3.3 billion.
Dollar-yen options trading was 116 percent more than the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was also 75 percent more than average.
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