BLBG: Yen Rises to 15-Year High Against Dollar on Concern Global Growth Slowing
The yen advanced to the strongest level since June 1995 against the dollar and the U.S. currency gained to a six-week high versus the euro as concern the global economy is slowing encouraged demand for safer assets.
Japan’s currency appreciated to its highest level against the euro since 2001 even as Prime Minister Naoto Kan told reporters “steep currency gains are undesirable.” The pound slid to a one-month low versus the dollar after the Times of London cited Bank of England policy maker Martin Weale as saying the U.K. faces a “real risk” of a second recession.
“The Japanese have been very slow to react to this strong yen, and the market is now trying to test the Japanese government,” said Amelia Bourdeau, a currency strategist in Stamford, Connecticut, at UBS AG. “Globally you’re seeing a lot of the policy makers within the G-10 turning more dovish.”
Japan’s currency climbed 1.9 percent to 105.79 per euro at 9:08 a.m. in New York, from 107.79 yesterday, and reached 105.44, the strongest level since July 2001. The yen appreciated 1.5 percent to 83.90 per dollar, from 85.16, and touched 83.72, the strongest level since June 1995. The dollar gained 0.4 percent to $1.2606 per euro, from $1.2657, after reaching $1.2588, the strongest since July 13.
The dollar gained against 15 of its 16 most-traded counterparts before reports forecast to show that the U.S. housing market weakened and a gauge of German business confidence fell. The yen gained against all major currencies.
The Stoxx Europe 600 Index dropped 1.5 percent and futures on the Standard & Poor’s 500 Index fell 1.3 percent.
Risk ‘Is Back Off’
The yen has advanced 17 percent this year, the most among its developed-world counterparts, according to Bloomberg Correlation-Weighted Currency Indices. The euro has dropped 9.3 percent, and the dollar is up 4.53 percent.
“It’s risk aversion -- risk is back off, and the dollar is strong again,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “Japanese investors are bringing money home.”
Sales of existing U.S. homes dropped 13.4 percent in July after a 5.1 percent drop in the previous month, according to the median estimate of 74 economists in a Bloomberg News survey ahead of a National Association of Realtors report today.
The Ifo institute’s German business climate index dropped to 105.7 in August from 106.2 in the previous month, a separate survey showed before tomorrow’s report.
Risk of Sliding Back
Nobel Prize-winning economist Joseph Stiglitz said the European economy is at risk of sliding back into a recession as governments cut spending to reduce their budget deficits.
“Cutting back willy-nilly on high-return investments just to make the picture of the deficit look better is really foolish,” Stiglitz, a Columbia University professor, told Dublin-based RTE Radio in an interview broadcast today.
Moody’s Investors Service said yesterday the European governments’ budget cuts will weigh on economic growth and increase the risk of countries having their credit rating cut.
The pound fell for a third day versus the dollar, dropping 0.7 percent to $1.5405, after the Times newspaper reported that Weale said the central bank’s latest economic forecasts are “putting a significant chance on the economy contracting over a four-quarter period.”
The central bank lowered its 2012 growth forecast on Aug. 11 to 3 percent from 3.6 percent, citing “tight credit conditions” and the government’s planned budget reductions. Britain is facing the deepest spending cuts since World War II, and most departments face reductions of a third, according to the independent Institute for Fiscal Studies.
‘Turning Dovish’
“Central bankers are turning dovish,” Mansoor Mohi-uddin, Singapore-based chief currency strategist at UBS AG, wrote in a note today. “Policy maker pessimism is inducing risk aversion again.”
Japanese Prime Minister Kan said told reporters in Tokyo today he wants to “closely monitor” the foreign-exchange market. He spoke after meeting with Nobuaki Koga, head of the Japanese Trade Union Federation, who said he told him Group of Seven finance ministers and central bankers should coordinate action to stabilize the yen.
Japan’s finance minister, Yoshihiko Noda, told reporters in Tokyo he will act appropriately in accordance with the G-7’s desire for currency movements to reflect economic fundamentals.
“Recent movements have clearly been one-sided,” Noda told reporters, referring to the yen’s advances against the dollar and the euro. “As I’ve said before, excessive and disorderly movements in the currency market can have a negative impact on the stability of the economy.”
The yen tends to strengthen during economic turmoil because investors repatriate funds from overseas and Japan’s trade surplus makes it less reliant on foreign capital.
The Bank of Japan “will be pressured to do something,” said Tatsushi Shikano, a senior economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “The situation is getting urgent.”
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
