BLBG: Yen, Dollar Strengthen After North Korea Tests Nuclear Weapon
The yen and the dollar rose after North Korea said it held a nuclear weapons test, defying demands for an end to its atomic program and boosting demand for the safety of the U.S. and Japanese currencies.
South Korea’s won fell the most of the 16-major currencies against the dollar and Asian stocks declined after North Korea’s official state media said its first nuclear test since 2006 was “successful.” The yen also rose against the dollar on speculation overseas investors are buying Japanese shares on optimism the nation’s recession is easing. Losses in the euro were tempered before a report that economists say will show German business confidence rose for a second month.
“The news spread concerns about geopolitical risk, sparking dollar buying as a haven and selling of South Korea’s won,” said Kengo Suzuki, manager of the foreign bond trading department at Mizuho Securities Co., a unit of Japan’s second- largest banking group. “The news also added to gains of the already firm yen.”
The yen advanced to 132.48 per euro as of 1:23 p.m. in Tokyo from 132.67 last week in New York. Japan’s currency rose to 94.67 per dollar from 94.78. The dollar advanced to $1.5889 versus the British pound from $1.5934, and bought $1.3994 per euro from $1.3998.
The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, climbed to 80.098 from 79.958.
The won slumped 0.6 percent to 1,255.70 per dollar, according to Seoul Money Brokerage Services Ltd. The MSCI Asia Pacific excluding Japan Index declined 0.8 percent, after earlier rising as much as 0.5 percent.
‘Nuclear Deterrent’
North Korea said its underground nuclear test was part of measures to “bolster up its nuclear deterrent for self defense,” according to a statement from the official Korean Central News Agency. The test may complicate efforts to get North Korean leader Kim Jong Il to return to six-nation talks aimed at ending its nuclear weapons program.
“This is not a pretty picture, especially with this kind of external issue and the North’s stern stance,” said Kim Yong Tae, who helps oversee the equivalent of $1.2 billion in assets as a fund manager in Seoul at Yurie Asset Management Inc. “Investor sentiment will be negatively impacted and it’s going to be difficult to expect big gains in the market in the short- term.”
Default Swaps
The yen also advanced against all of the 16 most-active currencies after credit-default swaps for the nation fell while those for the U.S. rose, indicating an improving perception of the Asian nation’s credit quality relative to that of the world’s largest economy.
The cost to protect buyers of Japanese sovereign bonds for five years declined to 45.97, the lowest level since Jan. 28, from 50 on May 21, according to CMA DataVision. The five-year price for the U.S. climbed to 42.51 on May 22, the highest since April 28, from 37.75 the previous day.
Standard & Poor’s cut its outlook on the U.K.’s AAA credit rating on May 21, spurring speculation the same will happen to the U.S.’s grade. Pacific Investment Management Co.’s co-chief investment officer, Bill Gross, said last week the U.S. will “eventually” lose its top rating.
“Now that the safety of U.S Treasuries has been called into question, money managers may try to more shift funds away from dollar-denominated assets,” said Hiroshi Maeba, deputy managing director of foreign-exchange trading in Tokyo at Nomura Securities Co., a unit of Japan’s biggest brokerage by assets.
Assessment Raised
The Bank of Japan last week raised its economic assessment for the first time since July 2006. The central bank also said it will accept foreign debt owned by banks as collateral.
The euro traded near the strongest level this year against the dollar on speculation European Central Bank council member Axel Weber will reiterate today that policy makers should refrain from further interest-rate cuts.
“Germany’s Ifo survey will show an improvement in business confidence, supporting buying of the euro,” said Mizuho Shimozono, an economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second-largest bank. The dollar may drop to $1.425 per euro this week, she said.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 85 from 83.7 in April, according to a Bloomberg News survey of economists before the organization releases the survey today in Munich.
Futures traders increased their bets to the most in 10 months that the euro will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed on May 22.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 12,250 on May 19, the largest since July 15, compared with net longs of 10,415 a week earlier. Futures are agreements to buy or sell assets at a set price and date.
