BLBG:Yen Falls Most in 9 Weeks Versus Euro on Tax Report; Krona Rises
The yen slid the most in nine weeks against the euro after a newspaper report saying the Japanese government is weighing a corporate-tax cut boosted stocks and damped demand for safer assets.
The yen declined at least 0.6 percent versus all of its 16 major counterparts as the Cabinet Office said machinery orders declined in June, backing the case for further central bank stimulus that tends to weaken a currency. The Bloomberg U.S. Dollar Index rose for a second day as Treasury yields climbed before a report that economists said will show retail sales climbed in July. Sweden’s krona strengthened versus all its most-active peers after consumer prices unexpectedly increased.
“The yen is lower on news from Japan that a corporate tax cut is being considered,” said Alvin Tan, a director of foreign-exchange strategies at Societe Generale SA in London. “If we do get a good raft of structural reforms, including a corporate-tax cut, that would lift the dollar higher versus the yen over the course of the year. A good U.S. retail sales number today that moves U.S. 10-year yields higher would also move the dollar higher versus the yen.”
The yen slid 1.2 percent to 130.42 per euro at 6:49 a.m. New York time, the largest one-day drop since June 10. Japan’s currency fell 1.2 percent to 98.06 per dollar, the steepest decline since Aug. 1. The euro was little changed at $1.3299.
Societe Generale forecasts the yen will weaken to 110 per dollar by year-end, Tan said.
Corporate Taxes
Japanese Prime Minister Shinzo Abe asked for a study of lower tax rates on businesses as a counterweight to a sales-levy increase, the Nikkei newspaper reported, citing unidentified people in the government. Japan is considering raising the consumption tax by three percentage points next year to rein in a national debt of more than twice gross domestic product.
Japanese machinery orders fell 2.7 percent in June from the previous month, when they climbed 10.5 percent, the Cabinet Office said. The Nikkei 22 Stock Average jumped 2.6 percent.
Options traders have become less bullish on the yen, 25-delta risk reversals show. The premium for one-month options granting the right to buy Japan’s currency versus the euro relative to those allowing for sales was at 0.96 percentage point, the least since May 29, data compiled by Bloomberg show.
The yen has tumbled 9.1 percent this year, the second worst performer after Australia’s dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 5.2 percent and the U.S. dollar strengthened 4.3 percent.
Dollar Advances
The dollar strengthened against all except two of its 16 major peers amid speculation today’s retail-sales report will add to evidence the U.S. economy is breaking free of the effects of higher taxes and budget cuts.
Sales climbed 0.3 percent last month after a 0.4 percent advance in June, according to the median forecast of economists surveyed by Bloomberg before the Commerce Department data.
The Bloomberg U.S. Dollar Index advanced 0.3 percent to 1,023.72 after gaining 0.4 percent yesterday.
The krona rose for the first time in three days against the dollar as the increase in consumer prices eased pressure on the central bank to lower interest rates.
Consumer prices climbed an annual 0.1 percent in July after declining 0.1 percent the previous month, Statistics Sweden said. Prices were estimated to remain unchanged, according to a Bloomberg survey of economists.
Sweden’s central bank said last month it will keep its main lending rate at 1 percent for at least another year to boost demand as a recession in Europe is fueling unemployment.
“Today’s figure combined with the decent data we’ve seen during the summer for the Swedish economy supports the case that the Riksbank won’t cut rates further,” said Andreas Wallstroem, an analyst at Nordea Bank AB in Stockholm. Inflation will continue to pick up as economic “growth accelerates towards the end of the year,” he said.
The krona advanced 0.2 percent to 6.5172 per dollar and appreciated 0.3 percent to 8.6645 per euro.
To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net
