BLBG: Yen Falls Most in Two Weeks Against Euro After Stocks Rebound
By Lukanyo Mnyanda and Ron Harui
Oct. 28 (Bloomberg) -- The yen fell the most in two weeks against the euro and dropped for the first time in six days versus the dollar as a rebound in stocks slowed the sale of higher-yielding assets funded in Japan.
The yen also declined on speculation Japan's central bank will sell the currency for the first time since March 2004 to help exporters hurt by its gains. Japanese Finance Minister Shoichi Nakagawa said yesterday the government is ready to act if needed after the yen traded near a 13-year high against the dollar and at its strongest since May 2002 versus the euro.
``It's all about what's happening in stocks and that's giving us the impetus to unwind some of the risk-aversion trades,'' said Jeremy Stretch, a senior currency strategist in London at Rabobank International, the third-largest Dutch bank. ``Intervention is a real risk.''
Japan's currency slid 2.3 percent to 118.62 per euro at 7:21 a.m. in New York, the most since Oct. 13, from 115.92 yesterday, when it touched 113.64, the strongest level in more than six years. The yen fell to 94.80 per dollar, from 92.78. It reached 90.93 on Oct. 24, the highest level since August 1995.
The yen typically falls when demand rises for so-called carry trades, where investors borrow in currencies with low interest rates and buy assets in nations with higher rates. Japan's key interest rate of 0.5 percent compares with the euro region's 3.75 percent and 6 percent in Australia. The yen may trade between 92 and 97.5 per dollar this week, Stretch said.
The euro was at $1.2507, from $1.2493 yesterday. Earlier, it dropped to $1.2330, the weakest since April 2006. The British pound climbed 0.9 percent to $1.5692. It touched $1.5269 on Oct. 24, the lowest since August 2002. The Australian dollar rose 2.9 percent to 61.87 U.S. cents from 60.13 cents yesterday.
Possible Intervention
Japan's Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo today that abrupt increases in currency volatility are ``undesirable.'' The yen has appreciated this month against all 170 global currencies tracked by Bloomberg, eroding Japanese exporters' overseas income.
Honda Motor Co., Japan's second-largest automaker, today cut its operating profit forecast for the financial year ending March by 13 percent to 550 billion yen ($5.8 billion). The new estimate was based on an exchange rate of 100 per dollar and every 1 yen gain against the greenback reduces annual operating profit by 20 billion yen.
``At this point, it would be bad to bet against intervention'' by the Bank of Japan, Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, said in an interview on Bloomberg Television. ``Currencies are being driven by risk appetite and anxiety in the market.''
Stocks Rebound
The yen has jumped 31 percent versus the euro and 51 percent against the Australian dollar in the past month on speculation investors will unwind carry trades.
The allure of carry trades dimmed in recent weeks as the global credit crisis led to increased currency volatility and fanned a stocks rout that's erased more than $12 trillion of market value this month alone.
Japan's Nikkei 225 Stock Average rebounded from the lowest level in 26 years today and Hong Kong's Hang Seng Index surged 14 percent, snapping a five-day losing streak that drove the benchmark down 28 percent. Europe's Dow Jones Stoxx 600 Index advanced 2 percent.
Gains in the common European currency may be limited after European Central Bank President Jean-Claude Trichet said yesterday he may cut interest rates next week. Europe's economy is on the brink of a recession, with the region's manufacturing and services industries contracting at a record pace in October and German business confidence dropping to a five-year low.
European Rate Cuts
``Worries over Europe's economy are heightening and Trichet has signaled lower rates,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank AG in Tokyo. ``The bias for the euro is down.'' The euro may weaken to $1.22 this week, he forecast.
Investors are betting the ECB will lower borrowing costs further by June after cutting the main refinancing rate by a half point to 3.75 percent on Oct. 8. The implied yield on the three-month Euribor contract expiring in June was 3.1 percent today from 3.23 percent a week ago.
The Euribor contract has averaged around 44 basis points, or 0.44 percentage point, more than the ECB's overnight target during the past two years, Bloomberg data show.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
