BLBG: Yen Advances as Waning Company Earnings Stoke Demand for Refuge
The yen rose against the dollar and the euro as falling company earnings fueled concern the recession is deepening, prompting traders to buy the currency as a refuge.
The Japanese currency snapped three days of declines versus the dollar and gained the most in almost two weeks versus the euro as stocks tumbled in Asia and Europe. Anglo American Plc suspended its dividend today and said profit slumped, while Saab Automobile filed for reorganization under Swedish law. The euro fell, set for the biggest weekly decline in a month against the dollar, as European Central Bank President Jean-Claude Trichet said in Paris the 16-nation economy is in “uncharted waters.”
“Some people are buying yen as a hedge against falling stocks,” said Neil Jones, head of hedge fund sales in London at Mizuho Corporate Bank. “There’s also a seasonal factor that supports the yen. Japan’s fiscal year is about to end soon and some companies are still repatriating money back home.”
The yen strengthened to 93.67 per dollar of 9:21 a.m. in London, from 94.20 in New York yesterday. It appreciated to 118.01 per euro, from 119.37 yesterday. The euro dropped to $1.2595, from $1.2674.
The yen is attractive in times of financial turmoil because Japan’s current-account surplus reduces the country’s reliance on overseas lenders. The currency also typically gains before end of financial year March 31 as some institutions sell foreign assets in favor of yen-denominated holdings to bolster balance sheets as they prepare to report to investors. The yen gained in every February for the past three years.
Stocks, Earnings
Stocks dropped today, with the MSCI World Index falling for a ninth day. U.S. equity futures expiring in March slid 1.6 percent, a fifth straight decline.
Anglo American, which controls the world’s largest platinum producer, slid as much as 14 percent in London after saying it will resume dividend payments “as soon as market conditions allow.” Bridgestone Corp., the world’s biggest tiremaker, sank 7.2 percent in Tokyo to after saying 2009 profit will probably fall 71 percent. Saab Automobile filed for protection from creditors after parent General Motors Corp. said it will cut ties following two decades of losses.
The global credit crisis poses a “serious challenge” to the financial system and economic policy makers around the world, Trichet said today in a speech in Paris. The ECB will provide financial institutions with unlimited cash for as long as needed to help them through the crisis, he said.
“We have gone short euro-dollar as a trade recommendation because prospects of rising growth risks up ahead point to the need for the ECB to apply more aggressive policy steps and investor-growth expectations remain at risk of being too optimistic,” Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a note yesterday.
Europe’s manufacturing and service industries unexpectedly contracted at a record pace in February, an index based on a survey of purchasing managers by Markit Economics showed. A composite index of both industries fell to 36.2, a record low. Economists forecast an increase to 38.5, according to the median of 13 estimates in a Bloomberg survey.
