BLBG: Yen Falls as Gain in Stocks Adds Demand For Higher-Yield Assets
The yen weakened against all of the most actively traded currencies as global stocks gained, spurring investors to favor riskier assets.
The British pound depreciated against the Australian dollar, South African rand and U.S. dollar after the Bank of England said it will keep pumping money into the economy by purchasing government bonds. Norway’s krone gained by the most this week versus Japan’s currency.
“Currencies are generally tracking equity markets,” said Adam Cole, global head of currency strategy in London at Royal Bank of Canada. “The currency market fluctuated this week as it seeks a clearer picture of risks. We still believe the dollar will head upward in a longer term because the dynamic from the policy stance is positive for it.”
The yen declined 0.5 percent to 133.17 per euro at 10:02 a.m. in New York from 132.48 yesterday. Japan’s currency weakened 1.6 percent to 72.17 to the Australian dollar and by 1.5 percent to 15.18 versus the krone. The yen fell to 100.33 against the greenback, from 99.76.
The euro weakened to $1.3272 from $1.3282. Trading in currencies may be more subdued than usual ahead of the Easter holiday weekend, Cole said. The yen depreciated as the MSCI World Index of global shares advanced 1 percent. The Standard & Poor’s 500 Index rose 3.1 percent.
Risk Appetite
“High-yield corporate bonds have priced in a very high default rate that is not realistic,” said Pu Yonghao, head of Asia-Pacific research at UBS AG, in a Bloomberg Television interview from Hong Kong. “Over the longer term equity does look attractive in terms of valuation even if in the short term we see potential volatility and potential corrections.”
Predictions for swings in the yen against the dollar slid to the lowest since Lehman Brothers Holdings Inc. failed in September, as a perceived easing of the global financial crisis reduced the lure of Japan’s currency, according to Daiwa Securities Group Inc.
Volatility on one-month yen-dollar options fell to as low as 15.25 percent this week, the least since Sept. 15, when Lehman failed, data compiled by Bloomberg show.
“Expectations that policy actions around the world will provide a safety net have reduced the risk of yen appreciation and pushed down volatility,” said Takahide Nagasaki, senior currency strategist at Daiwa Securities SMBC Co. in Tokyo.
European Central Bank council member Ewald Nowotny said cutting the benchmark rate below 1 percent is still open for debate and it would be “sensible” for the bank to buy corporate debt as it fights for an economic recovery.
‘Efficient’ Measure
“It’s my personal opinion that the benchmark rate should not go below 1 percent, but this is a point that’s open for discussion,” Nowotny, who heads Austria’s central bank, said in a telephone interview from Vienna late yesterday. The purchase of commercial paper and corporate bonds is “a sensible and efficient measure” that would take time to prepare, he said.
The Deutsche Bank trade-weighted euro index, measured against the dollar, the yen, the Swiss franc, the pound and the Swedish krona, rose to 136.65 from 136.42 yesterday.
The euro will rise to $1.40 in three months and $1.45 in six and 12 months, according to Goldman Sachs Group Inc.
The Dollar Index, which the ICE uses to track the greenback versus the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell 0.2 percent to 85.156 from 85.361.
Deeper German Recession
Gains in the euro may be tempered after a German government report today showed industrial production fell for a sixth month, adding to concern the nation’s recession is deepening.
“We would argue there’s more weakness coming in the euro,” said Robert Doll, who oversees $280 billion as chief investment officer for global equities at BlackRock Inc., speaking in a Bloomberg Television interview. “The euro zone’s been slow to recognize the problem, slow to reduce interest rates. Therefore it’s going to be much slower to recover.”
Output fell a seasonally adjusted 2.9 percent from January, when it slumped 6.1 percent, the most since data for a reunified Germany began in 1991, the Economy Ministry in Berlin said. Inflation slowed to the least in almost 10 years last month as consumer demand eased, a separate report showed today.
The dollar extended its gains against the euro after a government report showed U.S. trade deficit unexpectedly narrowed in February to the lowest level in nine years.
Imports of Asian cars, toys and electronics collapsed, narrowing the difference between goods brought in from overseas and exports by 28 percent to $26 billion.
“It’s a big deal,” said Alan Ruskin, head of international currency strategy in North America at RBS Securities Inc. in Greenwich, Connecticut. “It suggests that global rebalancing has taken another big step forward, which is very good for the dollar.”
