BLBG: Yen Drops After Japanese Increase Purchases of Overseas Bonds
The yen weakened for a second day versus the dollar and declined against the euro after a report showed Japanese investors increased purchases of overseas assets.
The yen fell versus 12 of the 16 most-active currencies after the Ministry of Finance said Japanese bought 982 billion yen ($10.2 billion) more overseas bonds than they sold last week, the largest net purchase in a month. Asian currencies declined, led by the Taiwan dollar and Indonesian rupiah, as regional stocks dropped after reports showed U.S. employers cut more workers and capital spending by Japanese companies slumped.
“Japanese investors are beginning to get an appetite for foreign investment, which is weighing on the yen,” said David Forrester, a strategist in Singapore at Barclays Capital, a unit of the U.K.’s third-biggest bank. “They will continue to increase their exporting of capital and we expect the yen to be one of the worst performers in the next six months.”
The yen fell to 136.34 per euro as of 1:34 p.m. in Tokyo, from 135.93 in New York yesterday, when it fell to 138.00, the weakest level since Oct. 20. The yen dropped to 96.21 per dollar from 95.99. The U.S. currency was little changed at $1.4176 per euro from $1.4162 yesterday, when it slid to $1.4338, the lowest this year.
Japan’s currency may decline to as low as 98 against the greenback over the next year, Forrester said.
The Taiwan dollar dropped 0.6 percent to NT$32.69 against the U.S. currency, the Philippine peso slipped 0.4 percent to 47.385 and Indonesia’s rupiah lost 0.4 percent to 10,155.
Taiwan Dollar
Taiwan’s currency dropped the most in eight weeks as concern the global economic recovery is faltering prompted investors to cut their holdings of emerging-market assets.
The MSCI Asia Pacific Index of regional shares slumped 1.7 percent, ending four days of gains, and the Nikkei 225 Stock Average fell 0.3 percent.
ADP Employer Services yesterday reported U.S. companies cut an additional 532,000 jobs last month as the labor market showed little signs of improving. Japanese capital spending excluding software fell 25.4 percent in the three months ended March 31 from a year earlier, compared with an 18.1 percent decline the previous quarter, the Ministry of Finance said today in Tokyo.
“U.S. data was not particularly favorable” and that is hurting Asian currencies, said Craig Chan, a strategist at Nomura Singapore Ltd., a unit of Japan’s largest brokerage.
ECB Meeting
The euro was little changed against the dollar on speculation European Central Bank policy makers meeting today will take further steps to keep down borrowing costs in the 16- nation region as optimism over the global recovery wanes.
“The financial market has become overly optimistic about the global economy,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. There should be some “profit-taking ahead of the central bank meeting.”
ECB policy makers will hold the main refinancing rate at 1 percent at the meeting, according to the median forecast of economists surveyed by Bloomberg News.
The ECB said last month it would buy 60 billion euros ($85 billion) of covered bonds, debt issued by banks and backed by mortgages or public-sector loans.
“We’ve been told and warned to expect the implementation of the covered bond purchase program,” Rennie said. “If there’s any suggestion that the bond program may not be fully sterilized or there’s a question over how the sterilization may take place, then I think it will be seen as euro negative.”
Fitch Ratings
The dollar gained against the yen after Fitch Ratings today reiterated its confidence in the U.S. and U.K.’s AAA ratings.
“Our confidence in their ability and track record to do the right thing” makes the U.S. and the U.K. AAA-rated borrowers, said David Riley, head of sovereign ratings at Fitch, speaking at a conference in Sydney.
The dollar completed the biggest weekly decline in two months versus the euro on May 22 after Pacific Investment Management Co.’s Bill Gross said the previous day that the U.S. will lose its top credit rating “eventually.”
“The rating comments today helped remove a stumbling block on currencies such as the dollar and euro, which faced concerns over rating downgrades,” said Takeshi Makita, a Tokyo-based economist at Japan Research Institute Ltd., a unit of Japan’s third-largest lender, Sumitomo Mitsui Financial Group Inc. “These currencies may gain further momentum.”
The Dollar Index was little changed after yesterday gaining the most in more than four months after Federal Reserve Chairman Ben S. Bernanke said the Fed won’t finance government spending over the long term.
“Bernanke told Congress that the Fed won’t accommodate wider budget deficits by simply printing money, clearly attempting to reassure foreign investors worried about the U.S. dollar’s ‘safe haven’ status,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd. wrote in a research report.
The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, traded at 79.372 from 79.500 yesterday, when it climbed 1.4 percent, the biggest gain since Jan. 20.
