BLBG: Yen Trades Near Lowest in 2009 as BOJ Weighs Lending to Banks
The yen traded near the lowest level versus the euro this year as the Bank of Japan said it may provide 1 trillion yen ($10 billion) of subordinated loans to banks, raising concern it will flood the market with currency.
The euro advanced versus the yen after a report showed German investor confidence unexpectedly rose in March for a fifth month. The yen fell more than 1 percent versus the South Korean won and Norwegian krone on the Japanese central bank’s proposal to replenish capital.
“The yen is still on the defensive,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “The Bank of Japan’s move could contribute to yen weakness here.”
Japan’s currency slid 0.5 percent to 127.93 against the euro at 10:34 a.m. in New York, from 127.32 yesterday, when it reached 128.73, the weakest level since Dec. 29. The euro traded at $1.2954, compared with $1.2968. The yen declined 0.6 percent to 98.76 per dollar from 98.18.
South Korea’s won was the biggest gainer versus the dollar as a widening trade surplus eased concern banks will struggle to repay overseas debt. The currency increased as much as 1.7 percent to 1,396.97 against the dollar, the strongest level since Feb. 13. The trade surplus is likely to reach a record of more than $4 billion in March as imports shrink at a faster pace than exports, according to the government.
The yen dropped 2.9 percent to 14.25 won and 1.2 percent to 14.50 versus the Norwegian krone after Bank of Japan Governor Masaaki Shirakawa told reporters today in Tokyo that details of the subordinated loans will be provided “as soon as possible.”
BOJ’s Meeting
The government offered in December to buy as much as 12 trillion yen ($122 billion) of preferred shares. The BOJ will conclude a two-day policy meeting tomorrow.
“Ultimately, the BOJ will become more aggressive going forward,” said Lee Hardman, a London-based currency strategist at Bank of Tokyo-Mitsubishi Ltd. “That’s undermining the yen.”
Europe’s single currency rose for a fourth day versus the yen as the ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations increased to minus 3.5, the highest level since July 2007, from minus 5.8 in February. The median forecast of 39 economists surveyed by Bloomberg News was for a drop to minus 8.
The euro sustained its advance after Handelsblatt reported today that European Central Bank Executive Board member Juergen Stark said the 1.5 percent main refinancing rate can’t be cut much further.
“We have a little more room,” Stark said in an article in Handelsblatt. “For me personally, the threshold isn’t far away from the current level,” he said.
ECB Rate Outlook
Investors maintained bets the ECB will reduce borrowing costs at its next policy meeting on April 2. The yield on the three-month Euribor interest-rate futures contract due in June was 1.44 percent, compared with 1.52 percent a week ago, according to data compiled by Bloomberg.
Against the dollar, the euro was little changed after gaining for five straight days, staying below the 100-day moving average of $1.3057 today. It rose beyond $1.30 yesterday for the first time since Feb. 10 after a 2.2 percent rally last week.
“The euro is hitting the upper end of its ranges against the dollar and the yen, and it could get sluggish from here,” said Steve Barrow, a currency strategist at Standard Bank Plc in London. The currency may start retreating once it reaches 130 yen, Barrow said.
The dollar remained higher versus the yen after the U.S. Commerce Department said U.S. housing starts unexpectedly ended the longest stretch of decline in 18 years in February. Work began on 583,000 homes at an annual rate, a 22 percent increase from January. The median forecast of 71 economists surveyed by Bloomberg News was for housing starts to drop to a 450,000 annual pace.
Fed Policy
The Federal Reserve will keep its target lending rate in a range of zero to 0.25 percent after a two-day meeting starting today, according to the median forecast of 71 economists surveyed by Bloomberg News. Following the last meeting on Jan. 28, policy makers led by Chairman Ben S. Bernanke said they were “prepared to purchase longer-term Treasury securities” if it became clear such a move would be “particularly effective” in getting credit flowing again.
“The euro-dollar looks likely to chop sideways as we wait for the Fed and in particular any color on whether they are closer to buying Treasuries,” wrote Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut, in a note to clients.
Deflation has yet to “take hold emphatically,” which will “dissuade the Bernanke Fed from more immediate and aggressive quantitative easing akin to helicopter drops, of which buying Treasuries is one form,” he wrote.
U.S. producer prices rose 0.1 percent in February, following a 0.8 percent advance in previous month, the Labor Department reported today in Washington. Excluding food and fuel, so-called core prices rose 0.2 percent.
To contact the reporters on this story: Ye Xie in New York at
