BLBG: Yen Gains as Deepening Global Recession Spurs Demand for Refuge
The yen advanced for a second day against the euro on speculation the deepening global recession will spur demand for the currency as a refuge.
The yen and the greenback gained versus the Australian and New Zealand dollars after a Japanese report confirmed the economy shrank at the fastest pace since 1974, prompting investors to sell higher-yielding assets. The euro may halt a two-day winning streak against the dollar before a German report that economists say will show industrial production dropped for a fifth month, giving the European Central Bank more room to cut interest rates.
“The Japanese report was certainly bad, with some of the data suggesting the economy will keep deteriorating this quarter,” said Yuji Saito, head of the currency group in Tokyo at Societe Generale SA, France’s third-largest bank. “Investors are still risk-averse. This has led to buying of the yen.”
The yen climbed to 123.70 versus the euro as of 2:22 p.m. in Tokyo from 124.86 late yesterday in New York. The currency climbed to 96.28 per dollar 97.27. It earlier reached 95.96, the strongest level since Feb. 24.
Japan’s currency climbed 1.6 percent to 62.47 against the Australian dollar and rose 1.1 percent to 49.42 versus the New Zealand dollar. The dollar traded at $1.2844 per euro from $1.2837 late yesterday.
Japan’s GDP
The yen gained versus all 16 of the most-traded currencies after the Cabinet Office said Japan’s gross domestic product shrank an annualized 12.1 percent in the three months ended Dec. 31, less than the 12.7 percent reported last month. The median estimate of economists surveyed by Bloomberg was for a 13.4 percent contraction.
Demand for the relative safety of the yen and the dollar increased as Japan’s Nikkei 225 Stock Average fell 1.9 percent and the MSCI Asia Pacific Index of regional shares lost 1.1 percent. Shares in the U.S. and Europe rose yesterday after JPMorgan Chase & Co. joined Citigroup Inc. in saying it was profitable in January and February.
“While recent news flows about U.S. banks may signal a potential bottoming out of the banking crisis, it is still premature to judge that the financial crisis is over,” said Shinya Furue, an economist at Norinchukin Research Institute Ltd. in Tokyo. “It is difficult to expect increased buying of stocks or rising capital inflows into emerging-market currencies.”
Sell Signals
The dollar may weaken to 95 yen and $1.33 per euro as momentum charts show “sell” signals for the greenback, according to Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo.
The dollar may extend losses to 95 yen, or the 38.2 percent Fibonacci retracement of its rally to the March 5 high of 99.68 from the January low of 87.13, said Osamu Takashima, chief foreign-exchange analyst in Tokyo at Bank of Tokyo-Mitsubishi.
Fibonacci analysis also indicates the dollar will drop to $1.33 per euro, Takashima wrote in a research note today.
The dollar may extend its decline to 95 yen, or 38.2 percent below the peak of its rally from this year’s low in January, said Osamu Takashima, chief foreign-exchange analyst at Bank of Tokyo-Mitsubishi, citing a so-called Fibonacci chart. Fibonacci analysis also indicates the dollar will drop to $1.33 per euro, Takashima wrote in a research note today.
New Zealand’s dollar ended two days of gains versus the yen after the nation’s central bank cuts its benchmark rate by half a percentage point to 3 percent, weakening the appeal of the currency. New Zealand’s policy rates compares with 0.1 percent in Japan and a 3.25 percent in Australia.
Europe’s single currency may extend losses against the yen on speculation a German report today will show industrial output declined in January, putting more pressure on the ECB to lower borrowing costs.
‘Deteriorating Economy’
The central bank still has “room to move” after reducing the benchmark interest rate to 1.5 percent last week, ECB council member Erkki Liikanen said yesterday in Helsinki.
“The ECB eventually has to do more on rates given the deteriorating economy and underlying risks in Eastern Europe,” said Yousuke Hosokawa, senior foreign-exchange dealer at Chuo Mitsui Trust & Banking Co. in Tokyo. “All the data and news flow suggest weakening of the euro ahead.”
Industrial output in Germany fell a seasonally adjusted 3 percent in January from the previous month, according to a Bloomberg News survey of economists. The Economy Ministry will release the report at 12 p.m. in Berlin.
Losses in the dollar may be limited on speculation U.S. investors will bring back earnings on overseas assets on concern the global recession will worsen.
Sales at U.S. retailers dropped 0.5 percent in February, the seventh decline in eight months, a separate Bloomberg survey of economists showed before the Commerce Department report today.
“Retail sales are likely to signal a further deterioration of the U.S. economy, which may spark renewed repatriation of the dollar by U.S. investors,” said Takashi Matsumura, a Tokyo- based economist at Mizuho Research Institute, a unit of Japan’s second-largest banking group.
The Dollar Index, which the ICE uses to track the greenback performance against the currencies of six major U.S. trading partners, fell 0.3 percent to 87.581 today. The index touched 89.624 on March 4, the highest level since April 2006.
