BLBG: Yen Strengthens as Manufacturing Slump Weakens Yuan, Ruble
By Bo Nielsen and Ye Xie
Dec. 1 (Bloomberg) -- The yen rose against the euro and the dollar as falling stocks and shrinking manufacturing in China and Russia encouraged investors to buy back the Japanese currency at the expense of higher-yielding assets.
China’s yuan fell the most since the government ended a fixed exchange rate in 2005 as manufacturing contracted by a record, while the ruble slid to a 2 1/2-year low as output fell more than in the 1998 crisis. Central banks in the U.K., the euro region, Australia and New Zealand are forecast to cut interest rates by as much as 1.5 percentage points this week.
“What you’ve seen is much-worse-than-expected global growth,” said Sebastian Galy, a currency strategist at BNP Paribas Securities SA in New York. “The yen is outperforming.”
The yen appreciated 2.4 percent to 118.42 per euro at 8:53 a.m. in New York, from 121.22 on Nov. 28. It gained 1.7 percent to 93.97 per dollar from 95.52. The dollar gained 0.7 percent to $1.2604 per euro from $1.2691.
The ruble dropped as low as 28.0325 per dollar, the weakest since March 2006, after VTB Group’s Purchasing Managers’ Index showed a monthly decline in manufacturing in November to a record low of 39.8. The ruble rose 0.3 percent to 35.3060 per euro, snapping a two-day decline, on bets the central bank is selling reserves to arrest the ruble’s depreciation.
Russia’s Reserves
Russia has used a quarter of its reserves, the third- largest in the world, to stem a 16 percent slide in the ruble against the dollar since August. Bank Rossii, which manages the currency against a basket of dollars and euros to mitigate the effect of currency swings, widened the ruble’s trading band to the basket twice last week, leaving it little changed today at 31.3025, the weaker end of the range.
The Dow Jones Stoxx 600 Index of European shares dropped 3 percent after surging 13 percent last week.
The Japanese currency gained 4 percent to 141.03 per pound, the biggest jump since Nov. 12, and 3.6 percent against the Australian dollar.
The yen appreciated against all major currencies except South Korea’s won as concern of a global recession prompted domestic investors in Japan to bring back overseas earnings.
“Japanese investors tend to repatriate capital during periods of risk aversion,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney.
Japan’s benchmark interest rate of 0.3 percent compares with 5.25 percent in Australia, 6.5 percent in New Zealand, 3.25 percent in the euro zone and 3 percent in the U.K.
Interest Rates
Interest rates will be lowered to 5 percent in New Zealand, to 4.5 percent in Australia, to 2 percent in the U.K. and to 2.75 percent in the euro region this week as central banks move to stem the economic slowdown, according to Bloomberg surveys.
“Aggressive rate cuts from the central banks meeting this week are required and will ensure the dollar and yen remain the best-performing currencies over the coming months,” Derek Halpenny, head of currency research at Bank of Tokyo-Mitsubishi in London, wrote in a note to clients today.
China’s purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November, from 44.6 in October, the China Federation of Logistics and Purchasing said today. South Korean exports tumbled 18.3 percent in November from a year earlier.
The yuan traded at 6.8816 per dollar, compared with 6.8346 at the end of last week. U.S. Treasury Secretary Henry Paulson visits Beijing for trade talks in three days’ time.
Japanese Recession
A recession in Japan deepened last month as manufacturers planned the sharpest production cuts in 35 years and consumers cut spending. Monthly wages, including overtime and bonuses, fell 0.1 percent in October to 274,751 yen ($2,883) from a year earlier, the Labor Ministry said in Tokyo.
The Bank of Japan will hold an emergency meeting this week to consider accepting a broader range of collateral from lenders as a way to help companies obtain funding, public broadcaster NHK said without citing anyone.
The dollar fell against the yen before U.S. reports this week that economists predict will show manufacturing shrank and employers cut jobs by the most since 2001.
U.S. nonfarm payrolls slid by 320,000 in November following a decline of 240,000 the previous month, according to a Bloomberg News survey before the Labor Department’s Dec. 5 report. The jobless rate may have jumped to 6.8 percent, the highest level since 1993, a separate Bloomberg survey showed.
‘Dollar Depreciation’
“People may look more closely at the U.S. economy, so there’s some scope for dollar depreciation,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “Higher-yielding currencies are losing their appeal because the interest-rate differential isn’t working in their favor.”
The dollar rose against all but three of the world’s most- traded currencies as investors sold higher-risk holdings for U.S. assets such as Treasuries. Gains in U.S. notes today drove the yield on the benchmark two-year security to an all-time low of 0.949 percent.
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
