BLBG: Yen Weakens After Federal Reserve Signals Recession Is Easing
The yen fell the most in three weeks against the euro after the Federal Reserve signaled yesterday the recession is easing, damping demand for the Japanese currency as a refuge in favor of higher-yielding assets.
The yen also declined against the Australian dollar and Brazil’s real after a government report showed Japanese investors bought more securities abroad than they sold for a seventh week. The Swiss franc fell for a second day against the dollar and the euro on speculation the nation’s central bank stepped up sales of the currency to keep it from strengthening.
“The Fed’s statement was soothing for risk appetite,” said Paul Robson, a London-based currency strategist at Royal Bank of Scotland Group Plc. “The knee-jerk reaction will be to buy risk.”
The yen weakened 0.8 percent to 134.32 per euro as of 7:27 a.m. in New York, after falling to 134.82 in its biggest decline since June 1. It depreciated 0.8 percent to 96.43 per dollar. Japan’s currency slid 0.6 percent to 76.68 versus Australia’s dollar and weakened 1 percent to 49.0107 per real. The dollar traded at $1.3933 per euro, from $1.3930.
The Federal Open Market Committee said yesterday it doesn’t plan to increase purchase of bonds as part of its quantitative easing strategy and “the pace of economic contraction is slowing,” providing more evidence the U.S. slump is easing.
“The Fed sounded a slightly more hawkish note than expected,” analysts led by David Woo, London-based global head of currency strategy at Barclays Capital, wrote in a research note today. “The FOMC statement led to dollar gains. The move has only unwound the weakness seen the day before, so there may be some further upside in the short term.”
Asian Currencies
The U.S. central bank held the target rate for overnight lending between banks in a range of zero to 0.25 percent for a fourth consecutive meeting. It kept the $1.75 trillion bond- buying program unchanged.
The dollar is up 6.4 percent against the yen this year.
Asian currencies strengthened against the yen as signs the global recession is waning boosted stocks in the region. The Nikkei 225 Stock Average climbed 2.2 percent. U.S. equity futures were little changed.
“There’s plenty more impetus in the risk appetite trade,” Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, said in an interview with Bloomberg Television today. “As we see further evidence of global recovery, that’s going to fuel more risk appetite.”
IMF on Australia
Australia’s dollar gained after the International Monetary Fund raised its outlook for the economy, saying it will shrink less than forecast this year and grow at more than double the anticipated pace in 2010. The Organization for Economic Cooperation and Development increased its estimate for growth among its 30 member nations for the first time in two years yesterday.
Japanese investors bought 336.1 billion yen ($3.5 billion) more foreign bonds, stocks and short-term securities than they sold in the week to June 20, according to figures from the Ministry of Finance in Tokyo. The yen has lost 2.5 percent versus the euro this quarter.
Finance companies in Japan are looking to raise 520 billion yen for mutual funds focused on foreign assets this week, according to data compiled by Bloomberg. The benchmark interest rate is 0.1 percent in Japan, compared with 3 percent in Australia and 2.5 percent in New Zealand.
Franc Declines
The franc slid as much as 0.5 percent versus the euro and 0.3 percent compared with the dollar. Swiss National bank Chairman Jean-Pierre Roth said on June 18 policy makers are determined to “stop a further appreciation of the franc.” Nicolas Haymoz, a bank spokesman, declined to comment on whether the bank acted in foreign-exchange markets today.
The Swiss franc slumped 2.9 percent against the dollar yesterday and 1.8 percent versus the euro as traders said the central bank intervened.
“A lot of the rise in the U.S. dollar was really because of central bank intervention, particularly with the Swiss central bank intervening very heavily, trying to weaken their currency,” said Katie Dean, a senior economist in Melbourne at Australia & New Zealand Banking Group Ltd., Australia’s fourth- biggest lender.
The franc’s decline versus the euro yesterday was the biggest since March 12, when the SNB said it would buy foreign currencies in its first solo intervention in foreign-exchange markets since 1992.
The euro advanced 1.6 percent versus the franc this quarter as the European Central Bank yesterday lent the most funds ever in an auction to unfreeze credit markets, bolstering demand for riskier investments.
