BLBG: Yen Weakens as Japanese Investors May Buy More Overseas Assets
The yen fell toward a two-week low against the euro and weakened versus the dollar on speculation Japanese investors will buy more overseas assets on signs the global recession is easing.
The yen slid versus all 16 of the most-traded currencies after a Japanese government report showed the nation’s investors boosted purchases of foreign bonds to the most in a month. Australia’s dollar rose toward a seven-month high against the U.S. currency on optimism the world economy is recovering, reviving demand for higher-yielding securities. New Zealand’s dollar gained after Standard & Poor’s raised its outlook on the country’s debt rating.
“It seems Japanese investors are betting on the optimism that the global economy has bottomed out and are willing to spend more on assets of emerging markets,” said Shoichi Handa, a senior dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “Since the Australian economy benefits significantly from a recovery of global demand, the Australian dollar may reach 80 yen.”
The yen weakened to 133.24 per euro as of 1:50 p.m. in Tokyo from 131.83 in New York yesterday, after touching 133.53, the lowest level since May 12. The yen dropped to 96.47 per dollar from 95.34, after reaching 96.58, the weakest since May 19. The dollar traded at $1.3809 against the euro from $1.3825.
Australia’s currency gained 0.1 percent to 77.61 U.S. cents and advanced 1.3 percent to 74.90 yen. New Zealand’s dollar strengthened 0.4 percent to 61.66 U.S. cents and rose 1.6 percent to 59.49 yen.
Best Performer
New Zealand’s dollar is the best performer against the yen this month, gaining 7.1 percent. The nation’s 10-year government bonds offer 4.41 percentage points more yield than similar- maturity Japanese debt.
The so-called kiwi reversed earlier declines versus the greenback after S&P raised the outlook on the country’s sovereign debt rating to stable from negative.
The yen also ended two days of gains versus the euro as the Nikkei 225 Stock Average reversed earlier losses to gain 0.3 percent. It earlier dropped as much as 0.9 percent.
“Equity markets of emerging economies, including Asia, are holding a relatively firm undertone, which means risk appetite is still reasonably strong,” said Akira Takeuchi, a Tokyo-based currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “The yen will be sold against higher-yielding currencies.”
Japanese investors bought 641.1 billion yen ($6.6 billion) more overseas bonds and notes than they sold in the week ended May 23, the biggest net purchases in a month, according to a report released by the Ministry of Finance today.
Investment Trusts
Nomura Asset Management Co., a unit of Japan’s largest brokerage firm, reopened its higher-yielding bond fund to new investments yesterday. The net assets of the fund, which includes holdings such as Brazilian real-denominated debt, rose to 287.9 billion yen from 45.3 billion yen in January, according to Nomura’s Web site.
Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Japanese retail sales fell for an eighth month in April, reducing the appeal of the nation’s currency. Sales slid 2.9 percent from a year earlier after decreasing a revised 3.8 percent in March, the Trade Ministry said in Tokyo.
Demand for the relative safety of the yen and the dollar may increase after the Federal Deposit Insurance Corp. said yesterday the number of “problem” banks grew to a 15-year high, reviving concern about the health of the U.S. banking system.
‘Problem’ Banks
The FDIC classified 305 banks as “problem” and the total assets involved rose 38 percent to $220 billion, the highest since 1993, the agency said, without identifying any of the lenders. The FDIC said its insurance fund slumped 25 percent to the lowest level in 15 years.
The dollar also traded near a one-week high against the euro on speculation General Motors Corp. will file for bankruptcy this week, renewing demand for the relative safety of the greenback.
A General Motors bankruptcy filing became almost certain after the world’s largest automaker failed yesterday to persuade enough bondholders to take equity in a streamlined company in exchange for $27 billion of debt. The debt-for-equity swap offer by GM failed to win the required 90 percent approval of bondholders by the time it expired last night
‘Inevitable’
“GM’s insolvency looks practically inevitable, which would likely cause risk aversion,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “This could spark buying of the dollar.”
Demand for the euro may also weaken before a government report that economists say will show German unemployment rose for a seventh month as company orders slumped in the worst recession in half a century.
The jobless rate increased a seasonally adjusted 64,000 in May, sending the adjusted jobless level to 8.4 percent from 8.3 percent, according to a Bloomberg News survey of economists before the Federal Labor Agency report today.
“Given renewed concerns about the banking system and the economy there following the rapid run-up of late, the euro may be sold back toward $1.37,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest bank.
