BLBG: Yen Falls to Lowest Since November on Concern Economy Worsening
The yen fell to a three-month low against the dollar before reports this week that may add to evidence Japan’s recession is deepening, reducing the appeal of its currency as a refuge from the global financial turmoil.
Japan’s currency also weakened versus the euro before data tomorrow that economists say will show unemployment rose to a three-year high and consumer prices fell for the first time since September 2007. The dollar gained for a fourth day against the yen ahead of a U.S. report that may show durable goods orders fell, spurring demand for the world’s reserve currency.
“The fundamentals are for the downside to the yen so weaker economic data tomorrow will support the weakening trend,” said Satoru Ogasawara, a foreign-exchange analyst and economist in Tokyo at Credit Suisse Group AG, Switzerland’s second-biggest bank. The yen may decline to 100 per dollar by the end of March, he said.
The yen fell to 97.92 against the dollar as of 12:52 p.m. in Tokyo from 97.39 yen late in New York yesterday. It reached 97.94 today, the weakest level since Nov. 14. It dropped to 124.67 per euro from 123.92 yesterday, when it touched 125.15, the lowest since Jan. 9.
The dollar traded at $1.2733 per euro from $1.2723 in New York yesterday. It slipped to $1.4253 versus the British pound from $1.4201, and traded at 1.1701 Swiss francs from 1.1699.
Japanese stocks rose, with the Nikkei 225 Stock Average advancing 0.9 percent. Nissan Motor Co., Japan’s third-largest automaker, gained 4 percent as the yen’s weakness increases the value of its overseas sales.
Worst Month
Japan’s currency is headed for its worst month versus the euro since 2000 and its biggest drop against the greenback in more than 13 years after a Cabinet Office report last week showed the economy shrank the most since the 1974 oil shock.
Consumer prices, excluding fresh food, fell 0.1 percent in Japan in January from a year earlier, according to a Bloomberg News survey of economists. The unemployment rate probably rose to 4.6 percent last month, the highest since February 2005, a separate survey showed.
The biggest currency traders are calling an end to the yen’s gains as the world’s second-largest economy sputters. The trade deficit widened in January to a record as exports plunged 46 percent, the Finance Ministry said yesterday.
‘Following Suit’
“With Japan’s trade data deteriorating sharply now, the Japanese yen is finally following suit,” Mansoor Mohi-Uddin, chief currency strategist at UBS AG, the world’s second-largest foreign-exchange trader, wrote in a note to clients yesterday. “Japan’s currency potentially has a lot further to slide if investors stop perceiving the yen as a safe haven and trade the currency instead on Japan’s worsening export numbers.”
The dollar is headed for its best month against the yen since August 1995 before the Commerce Department report today that may show orders for U.S. durable goods fell 2.5 percent in January, the sixth month of declines, according to a Bloomberg News survey. The report is due at 8:30 a.m. in Washington.
“Investors are still very worried about the global outlook,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “We suspect the dollar will remain the ‘safe-haven’ currency of choice in coming weeks.”
The ICE’s Dollar Index, which tracks the U.S. currency versus the euro, yen, pound, Canadian dollar, krona and Swiss franc, traded at 87.792 from 87.906. It touched 88.254 on Feb. 18, the strongest since a 2 1/2-year high reached on Nov. 21.
U.S. Economy
The U.S. economy probably contracted at a 5.4 percent annual pace in the fourth quarter, weaker than previously estimated and the worst slump in 26 years, according to a separate Bloomberg survey. The Commerce Department is scheduled to release the revised report tomorrow after saying on Jan. 30 that the economy shrank at a 3.8 percent pace.
The dollar’s advance against the yen may be tempered as the currency approaches so-called resistance at 98.90, according to Bank of America Securities-Merrill Lynch Japan.
The 98.90 yen level is a 50 percent retracement of the dollar’s decline from the August high of 110.66 yen to the January low of 87.13 yen, said Tomoko Fujii, a rates and currency strategist at the recently merged research division of Merrill Lynch and Bank of America Corp. in Tokyo, referring to a series of numbers known as the Fibonacci sequence. Resistance is a level where sell orders may be clustered.
The “strong” resistance levels will be “98.90, above which there is a psychologically important level of 100.00,” Fujii wrote in a report yesterday.
ECB Rates
The euro may fall for a second month against the dollar on concern financial turmoil in eastern Europe will deepen, backing the case for the ECB to lower borrowing costs.
Europe’s single currency also headed for a third weekly decline on speculation ECB President Jean-Claude Trichet will today express increased concern about the euro-region’s financial system and signal an interest-rate reduction in March.
“The financial crisis in eastern Europe seems to have just begun and will probably be difficult to resolve,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “This is likely to lead to selling of the euro,” which may decline to $1.2670 and 123.50 yen today, he said.
Trichet will speak on European competitiveness at 1 p.m. in Dublin. Trichet on Feb. 23 said the financial system was under “severe strain,” hampering an economic recovery.
Investors maintained bets the ECB will lower its 2 percent benchmark rate at its March 5 meeting. The yield on the three- month Euribor interest-rate futures contract due in March was unchanged from yesterday at 1.675 percent.
