BLBG: Yen Falls to Lowest Since November on Concern Economy Worsening
The yen weakened beyond 98 per dollar for the first time since November and declined versus the euro before government reports tomorrow forecast to show rising unemployment and falling consumer prices in Japan.
Japan’s currency is headed for its worst month against the dollar in 13 years and the poorest versus the euro since 2000 as the deepening recession reduces the yen’s appeal. The dollar fell against the euro, pound and Canadian dollar as U.S. stock- index futures rose, reducing demand for the world’s reserve currency as a haven.
“The yen continues to get beaten up,” said Sacha Tihanyi, a currency strategist in Toronto at Scotia Capital Inc., a unit of Canada’s third-largest bank by assets. “The economic situation in Japan is ugly. That won’t change any time soon.”
Japan’s currency slid 0.5 percent to 97.85 per dollar at 8:41 a.m. in New York, from 97.39 yesterday, touching 98.21, the weakest level since Nov. 11. Japan’s currency depreciated 0.9 percent to 125.08 per euro from 123.92 and reached 125.72, the weakest level since Jan. 8. The dollar decreased 0.5 percent to $1.2781 per euro from $1.2723.
The ICE’s Dollar Index, which tracks the U.S. currency versus the euro, yen, pound, Canadian dollar, krona and Swiss franc, fell 0.6 percent to 87.422. It touched 88.254 on Feb. 18, the strongest since a 2 1/2-year high reached on Nov. 21.
Standard & Poor’s 500 Index futures expiring in March added 1.4 percent, following gains in Europe, after Royal Bank of Scotland Group Plc said it will put 325 billion pounds ($462 billion) of investments into a U.K. government insurance program and shift toxic assets.
U.S. Economy
The dollar briefly pared its loss against the euro after government reports showed orders for U.S. durable goods fell in January and first-time claims for unemployment benefits unexpectedly rose last week, encouraging some investors to take refuge.
Japan’s currency was headed for an 8.4 percent loss against the dollar in February, the biggest monthly drop since 1995, as traders bet the deteriorating Japanese economy will lead to deflation, reducing the currency’s appeal as a refuge from the global financial crisis.
Consumer prices excluding fresh food fell 0.1 percent in January from a year earlier, according to the median forecast of 32 economists surveyed by Bloomberg News. The unemployment rate probably rose to 4.6 percent last month, the highest level since February 2005, a separate survey showed. Reports on inflation and unemployment are due tomorrow.
The trade deficit widened in January to the most in two decades as exports slumped by 46 percent, the Finance Ministry said yesterday in Tokyo. A Cabinet Office report last week showed the economy shrank the most since the 1974 oil shock.
Exports ‘Cataclysmic’
“The export figures yesterday were cataclysmic,” said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp., the world’s biggest custodian of financial assets. “There’s a great chance that the Bank of Japan is going to turn on the printing press again, and then we’re back to where we were in 2001.”
The Bank of Japan maintained a policy of flooding the financial system with cash from March 2001 through March 2006 to counter deflation.
Swings in the yen have been a “a bit excessive,” and the degree of fluctuations in currencies, rather than their levels, warrant close attention, Bank of Japan board member Tadao Noda said today.
‘Stable Manner’
“It’s important for companies and households that currencies generally move in a stable manner,” Noda told reporters in Naha, Okinawa.
The yen’s drop against the dollar may be tempered as the currency approaches resistance at 98.90, a 50 percent Fibonacci retracement of the dollar’s drop from the August high of 110.66 yen to the January low of 87.13 yen, according to Tomoko Fujii, a rates and currency strategist at Bank of America Securities- Merrill Lynch Japan. Resistance is a level where sell orders may be clustered.
The euro is poised for a second monthly loss against the dollar on concern financial turmoil in eastern Europe will worsen, supporting the case for the region’s central bank to lower interest rates.
European confidence in the economic outlook dropped to the lowest on record in February, the European Commission in Brussels said today, increasing pressure on the ECB to loosen monetary policy. German unemployment rose in February by a seasonally adjusted 40,000 to 3.31 million, a fourth straight monthly increase, the Federal Labor Agency said.
ECB Outlook
The European Central Bank is “obliged” to study the use of unconventional policy tools to revive the economy, ECB Governing Council member Miguel Angel Fernandez Ordonez told reporters in Madrid yesterday, adding that a review of possible steps is “progressing.”
Unconventional measures may include so-called quantitative easing, whereby the ECB may buy government securities to lower interest rates.
Standard & Poor’s cut Ukraine’s credit rating yesterday by two levels after it downgraded Latvia’s debt to junk on Feb. 24. The euro dropped 1.7 percent versus the dollar on Feb. 17, when Moody’s Investors Service said the credit ratings of Austrian, Swedish and other banks with subsidiaries in eastern Europe may be cut as economies in the region deteriorate.
