The yen rose against higher-yielding currencies and advanced the most in two weeks versus the dollar as stocks declined and the Bank of Japan said the nation’s deepest recession since World War II is easing.
Japan’s currency made the biggest gains against the Australian and New Zealand dollars and the Mexican peso as speculation the global economic crisis is far from over spurred investors to cut holdings of riskier assets. The greenback fell for a second day against the yen on concern the leaders of Brazil, Russia, India and China meeting today will call for less reliance on the dollar as the world’s reserve currency.
“Stocks are falling, indicating risk-aversion among investors,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The yen is being bought.”
The yen climbed to 133.46 per euro as of 7:40 a.m. in London from 134.99 yesterday in New York. It earlier rose to 132.74, the strongest level since May 28. The yen advanced 1.5 percent to 96.35 per dollar, the biggest gain since May 29. Japan’s currency rose 1.6 percent to 60.76 against the New Zealand dollar, and strengthened 1.8 percent to 76.44 versus Australia’s currency.
The euro rose to $1.3853 from $1.3803, after earlier weakening to $1.3749, the lowest level since May 21. Europe’s single currency climbed to 84.83 British pence from 84.57 pence.
Japan’s currency extended gains versus the dollar and the euro after the Bank of Japan raised its view of the nation’s economy for a second month and left the overnight lending rate unchanged at 0.1 percent.
‘Stop Worsening’
“Japan’s economic conditions, after deteriorating significantly, have begun to stop worsening,” the central bank said in a statement in Tokyo today. “Japan’s economy is likely to show clearer evidence of leveling out over time.”
The yen advanced against all 16 of the major currencies as the Nikkei 225 Stock Average declined 2.9 percent and the MSCI Asia-Pacific index decreased 1.7 percent. The VIX Index, a measure of market volatility known as Wall Street’s fear gauge, rose by 9.5 percent, the most since April 20, to 30.81 yesterday, indicating traders became more pessimistic about equity losses.
The dollar fell on concern leaders from the so-called BRIC nations will query the dollar’s role as an international reserve currency at their meeting today in the Ural Mountains city of Yekaterinburg, Russia.
“If we get a change in attitude from Russia, maybe we will get some softening of the U.S. dollar in the short-term, but I don’t think it’s a medium-term trend,” said Sebastien Barbe, a Hong-Kong based currency strategist at Calyon, the investment banking unit of France’s Credit Agricole SA.
‘Supranational Currency’
Russia’s President Dmitry Medvedev said in Yekaterinburg that the world economy cannot rely on one reserve currency.
“The strengthening of the international currency system” requires first creating regional reserve currencies and then a “supranational currency,” Medvedev told leaders of the member states of the Shanghai Cooperation Organization. “Reinforcing the international currency system should not be done through reinforcing only the dollar,” he said.
Russia is hosting back-to-back summits of the Shanghai Cooperation Organization, which is a regional security group, and the BRIC nations.
Japanese Finance Minister Kaoru Yosano today reiterated that the government’s trust in Treasuries and the dollar “is absolutely unshakable” and he has “faith in the U.S. dollar’s status as a reserve currency.”
Industrial Production
The dollar also weakened before a Federal Reserve report today that economists said will show U.S. industrial output fell 1 percent in May after dropping 0.5 percent in April.
Fed policy makers have held the main U.S. interest rate near zero since December and are keeping open the option of boosting loans and bond purchases to reduce the cost of credit for consumers and businesses. They are scheduled to meet again in Washington on June 23-24.
“The dollar has once again become the world’s funding currency with U.S. policy rates at zero,” analysts led by Callum Henderson, global head of currency strategy at Standard Chartered Bank in Singapore, wrote in a research note today. “We are generally bearish on the dollar.”
The euro reversed losses versus the dollar on speculation a German report today will show investor confidence in Europe’s largest economy rose to a three-year high in June.
The ZEW Center for European Economic Research will say its index of investor and analyst expectations rose to 35 from 31.1 in May, according to a Bloomberg survey. That would be the highest reading since June 2006. ZEW releases the report, which aims to predict economic Developments six months ahead, at 11 a.m. in Mannheim today.
“We’re looking for a slight improvement in German investor sentiment, which would suggest the euro-zone’s recession may be easing,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This would likely be positive for the euro.”
Source: Bloomberg.
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