BLBG: Yen Falls as Report Says N. Korea Launched Short-Range Missile
The yen weakened against the euro and the dollar after Yonhap News said North Korea launched a short- range missile, posing a threat to the region’s security.
South Korea’s won ended two days of gains versus the dollar and Asian stocks declined after North Korea’s official state media earlier said it also “successfully” tested a nuclear weapon underground. The yen dropped to a two-week low against the euro after Yonhap said U.S. and South Korean intelligence authorities were investigating the missile launch. The euro gained before a report that economists say will show German business confidence rose for a second month.
“The missile test may have been conducted to escalate geopolitical risk,” said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co. “Japan also is geographically close to North Korea so this doesn’t augur well. The yen is being sold.”
The yen weakened to 133.38 per euro as of 3:05 p.m. in Tokyo from 132.67 in New York last week, after earlier rising as high as 132.07. Japan’s currency fell to 95.11 per dollar from 94.78. The dollar traded at $1.4004 per euro from $1.3998.
The won declined 0.1 percent to 1,251.95 per dollar, according to Seoul Money Brokerage Services Ltd. The MSCI Asia Pacific excluding Japan Index dropped 0.4 percent, after earlier rising as much as 0.5 percent.
‘Self Defense’
North Korea said its underground nuclear test was part of measures to “bolster up its nuclear deterrent for self defense,” according to a statement from the official Korean Central News Agency. The test may complicate efforts to get North Korean leader Kim Jong Il to return to six-nation talks aimed at ending its nuclear weapons program.
“This is not a pretty picture, especially with this kind of external issue and the North’s stern stance,” said Kim Yong Tae, who helps oversee the equivalent of $1.2 billion in assets as a fund manager in Seoul at Yurie Asset Management Inc. “Investor sentiment will be negatively impacted and it’s going to be difficult to expect big gains” in the short-term.
The yen declined to an eight-month low against the dollar on Oct. 9, 2006, when the North Korea government said it had detonated its first nuclear bomb. A nuclear test is a threat to Japan, as Tokyo is 809 miles (1,295 kilometers) from North Korea’s capital of Pyongyang.
Default Swaps
Losses in the yen against the dollar may be tempered after credit-default swaps for Japan fell last week while those for the U.S. advanced, indicating an improving perception of the Asian nation’s credit quality relative to that of the world’s largest economy.
The cost to protect buyers of Japanese sovereign bonds for five years declined to 45.97, the lowest level since Jan. 28, from 50 on May 21, according to CMA DataVision. The five-year price for the U.S. climbed to 42.51 on May 22, the highest since April 28, from 37.75 the previous day.
Standard & Poor’s cut its outlook on the U.K.’s AAA credit rating on May 21, spurring speculation the same will happen to the U.S.’s grade. Pacific Investment Management Co.’s co-chief investment officer, Bill Gross, said last week the U.S. will “eventually” lose its top rating.
“Now that the safety of U.S Treasuries has been called into question, money managers may try to more shift funds away from dollar-denominated assets,” said Hiroshi Maeba, deputy managing director of foreign-exchange trading in Tokyo at Nomura Securities Co., a unit of Japan’s biggest brokerage by assets.
Business Confidence
The euro approached the strongest level this year against the dollar on speculation European Central Bank council member Axel Weber will reiterate today that policy makers should refrain from further interest-rate cuts.
“Germany’s Ifo survey will show an improvement in business confidence, supporting buying of the euro,” said Mizuho Shimozono, an economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second-largest bank. The dollar may drop to $1.425 per euro this week, she said.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 85 from 83.7 in April, according to a Bloomberg News survey of economists before the organization releases the survey today in Munich.
Futures traders increased their bets to the most in 10 months that the euro will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed on May 22.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 12,250 on May 19, the largest since July 15, compared with net longs of 10,415 a week earlier. Futures are agreements to buy or sell assets at a set price and date.
