Yen Rises as Officials Step Up Currency War Rhetoric

The yen strengthened against the dollar for a second day after its 5.5 percent drop over the past month prompted criticism from leaders around the world that recent exchange-rate moves have been excessive.

Japan’s currency pared gains as risk appetite improved and stocks erased losses. The yen rose earlier after touching a 30-month low on Jan. 14 as the nation’s policy makers moved to boost inflation and spur growth. A gauge of volatility increased to a four-month high as Russia’s central bank said the world’s leading economies are on the brink of a “currency war.” South Africa’s rand rose from the weakest level this year.

“You’re waiting for the next piece of news to push the yen above the 90 level,” Fabian Eliasson, vice president of corporate foreign-exchange sales at Mizuho Financial Group Inc. in New York, said in a telephone interview. “A lot of the inflation target of 2 percent and the previous intervention has already been priced into the market.”

The yen advanced 0.5 percent to 88.38 per dollar at 5 p.m. New York time, following a 0.8 percent jump yesterday. It gained as much as 1.1 percent earlier today. The Japanese currency reached 89.67 on Jan. 14, the weakest level since June 2010. It advanced 0.6 percent today to 117.45 per euro.

The shared currency depreciated 0.1 percent to $1.3289 after touching $1.3404 on Jan. 14, the highest since Feb. 29.

Implied volatility climbed. JPMorgan Chase & Co.’s G7 Volatility Index, based on three-month options on Group of Seven nations’ currencies, reached 8.53 percent, the most since Sept. 6. It fell to 7.06 on Dec. 18, the lowest since August 2007.

The Standard & Poor’s 500 Index was little changed after falling earlier as much as 0.3 percent and rising 0.1 percent.

Rand Gains

South Africa’s rand advanced versus the greenback after falling last week for five straight days, the longest losing stretch since August. Fitch Ratings downgraded the nation Jan. 10 to BBB from BBB+, citing slowing growth and rising unemployment. The currency rose 0.2 percent to 8.7980 per dollar today after touching 8.8790, the least since Dec. 4.

The gain was to be expected after “pretty strong selling,” Win Thin, global head of emerging-markets strategy at Brown Brothers Harriman & Co. in New York, said in a telephone interview. “The economy has been so weak, I think a rate cut is likely this year. High yield is one of the few things helping the rand right now.”

South Africa’s benchmark interest rate is 5 percent. The nation’s 10-year government bonds yielded 6.7 percent today, compared with 1.82 percent for U.S. Treasuries.

Pound Drops

Sterling declined for a fourth day versus the dollar, the longest losing stretch since November, and weakened against the euro as the World Bank lowered its global growth forecast. The pound lost 0.4 percent to $1.6007. It depreciated 0.2 percent to 83.02 pence per euro.

The World Bank cut its growth forecast for 2013 as austerity measures, high unemployment and low business confidence weigh on economies in developed nations. It projected the world economy will expand 2.4 percent, down from a June forecast of 3 percent, after growing 2.3 percent in 2012.

The Swiss franc strengthened for the first time in five days against the euro today, gaining 0.2 percent to 1.2371. It slid yesterday to 1.2413, the weakest level in 13 months.

Biggest Loser

The yen tumbled 5.5 percent over the past month against nine other developed-market peers tracked by Bloomberg Correlation-Weighted Indexes amid speculation the BOJ will step up measures to boost the economy that may weaken the currency. It was the biggest loser in the group. The dollar rose 0.2 percent, and the euro climbed 1.2 percent.

Policy makers across the world’s leading economies are advocating weaker currencies as a way to boost economic growth. Switzerland capped the franc’s appreciation against the euro at 1.20 in 2011, while newly elected Japanese Prime Minister Shinzo Abe’s campaign to boost the economy and seek a more aggressive central bank has driven down the yen.

“Japan is weakening the yen, and other countries may follow,” Bank Rossii First Deputy Chairman Alexei Ulyukayev said at a conference in Moscow today. Reciprocal devaluations would hurt the global economy, Ulyukayev said.

The Bank of Japan will review its 1 percent inflation goal at a policy meeting on Jan. 21-22. Abe has called for the target to be doubled.

‘Scaling Back’

“We had a really big run on the yen, and that’s been followed by a bit of profit-taking,” Greg Anderson, the North American head of Group of 10 currency strategy at Citigroup Inc. in New York, said in a telephone interview. “It may be scaling back expectations of radical movement by the Bank of Japan at its upcoming meeting.”

The euro fell 0.6 percent against the greenback yesterday, after Luxembourg Prime Minister Jean-Claude Juncker said the exchange rate is “dangerously high.”

The 17-nation currency’s advance is posing a fresh threat to the European economy just as it shows signs of escaping the debt crisis, Juncker, who steps down this month as head of the group of euro-area finance ministers, told an annual gathering of business leaders in Luxembourg .

The dollar stayed lower versus the yen after the Federal Reserve said in its Beige Book business survey that the U.S. economy picked up across much of the country last month. Growth was boosted by auto and home sales, even as the outlook for unemployment showed few signs of improvement, it said.

The book may strengthen the resolve of policy makers who want to press on with the central bank’s $85 billion in monthly bond purchases under the quantitative easing stimulus strategy. The Fed meets Jan. 29-30.

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