Yen Strengthens Amid Increase in Demand for Refuge; Rand Slides

The yen climbed against all of its 16 most-traded peers as investors sought safety amid a drop in Asian stocks after disappointing Japanese corporate earnings.

The Bloomberg Dollar Index fell for a third week amid bets the Federal Reserve won’t signal a change next week in monetary stimulus. Japanese government 10-year bonds, which are sensitive to inflation, rose even as data showed consumer prices gained the most since 2008. The Japan-U.S. yield gap was little changed. South Africa’s rand slid as China cut production capacity, damping trade prospects.

“That the yen is better across the board reflects the weakness in the Japanese stocks,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview. “There’s been an element of risk-off in terms of equities sliding.”

The yen climbed 1.1 percent to 98.21 per dollar at 5 p.m. New York time and touched 97.96, the strongest level since June 27. It rallied 2.5 percent this week. Japan’s currency appreciated 1.1 percent to 130.42 per euro, extending this week’s advance to 1.4 percent. The dollar was little changed at $1.3279 per euro, losing 1 percent on the week.

Futures traders increased for a fourth straight week bets that the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a drop in the yen compared with those on a gain -- so-called net shorts -- was 87,496 on July 23, the biggest gap since May 31. That compares with net shorts of 85,762 a week earlier.

Dollar Bets

Bets that the greenback will gain versus eight peers including the euro, yen and pound fell to $28 billion as of July 23, a $1.3 billion decline to the lowest since July 9, according to CFTC data compiled by Societe Generale SA.

A gauge of price fluctuations among Group-of-Seven currencies fell for a fifth week, the longest stretch in a year. JPMorgan Chase & Co.’s G-7 Volatility Index declined to 9.45 percent after reaching 9.11 percent on July 24, the lowest intraday level since May 9.

The yen strengthened 1 percent in the past three months among 10-developed nation currencies tracked by Bloomberg Correlation Weighted Indexes, trimming its 2013 decline to 9.4 percent. The dollar advanced 1.2 percent since April, and the euro rose 3.4 percent.

Rand, Real

The South African rand slid versus most major peers as China ordered more than 1,400 companies to cut excess production capacity, dimming the outlook for the country’s exporters. The currency dropped 0.5 percent to 9.7704 to the greenback.

Brazil’s real also weakened on the Chinese announcement amid bets commodities exports will be hurt. The currency depreciated 0.6 percent to 2.2562 reais per dollar.

Trading in over-the-counter foreign-exchange options totaled $23 billion, compared with $29 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 $7.5 billion, the largest share of trades at 33 percent. Options on the euro-dollar rate totaled $2.2 billion, or 9.8 percent.

Dollar-yen options trading was 13 percent above the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 39 percent less than average.

Dollar Gauge

The Bloomberg Dollar Index fell before the Federal Open Market Committee holds its next meeting July 30-31. The currency index, which tracks the dollar against 10 major peers, was at 1,022.85, down 1 percent on the week and 0.1 percent today.

Fed policy makers may debate so-called forward guidance, which is their description of policy intentions in coming years, according to a Wall Street Journal article yesterday.

“We have the obvious catalyst in terms of the Wall Street Journal article,” BNP Paribas’ Serebriakov said. “You’ve seen basically the yield support for the dollar continuing to erode, and that’s still the underlying story here.”

U.S. 10-year note yields fell for second day, losing one basis point, or 0.01 percentage point, to 2.56 percent.

The Fed will maintain its monthly bond-buying at $85 billion, according to 54 economists surveyed by Bloomberg News from July 18-22. Half of those polled said Chairman Ben S. Bernanke will trim purchases in September to $65 billion. The purchases tend to devalue the greenback.

Japanese Stocks

Japanese stocks fell as Chipmaker Advantest Corp. plunged 9.7 percent after posting a 3.6 billion yen ($36 million) loss. JFE Holdings Inc., Japan’s No. 2 steelmaker, slid 8.3 percent after forecasting current profit that missed analyst estimates. The Topix stock index sank 2.9 percent, the most since June 13.

The MSCI AC Asia Pacific Index decreased 0.5 percent, and the Standard & Poor’s 500 Index of stocks was little changed.

Japan’s 10-year government-bond yields declined two basis points to 0.79 percent. They were 178 basis points less than comparable U.S. Treasuries, little changed from yesterday. The gap was 167 basis points at the end of last week.

Consumer prices in Japan excluding fresh food climbed 0.4 percent in June from a year earlier, the statistics bureau said in Tokyo. The median estimate of economists surveyed by Bloomberg News was for an increase of 0.3 percent.

“We had the inflation data in Japan which was a bit higher than expected, and that’s reducing expectations of further monetary easing and giving a lift to the yen,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen.

The Japanese currency has weakened 7.5 percent over the past six months against the dollar as officials have pushed to end deflation.