BLBG: Yen Advances Versus Euro on Concern Credit Losses Increasing
July 6 (Bloomberg) -- The yen advanced for a third day against the euro and gained versus the dollar on concern credit- market losses will keep increasing in Europe and the U.S., spurring demand for the relative safety of Japan’s currency.
The yen rose versus all 16 major currencies as Asian stocks fell and Germany’s IKB Deutsche Industriebank AG said it lost 580 million euros ($810 million) in the fiscal year ending March 31, prompting investors to cut holdings of higher-yielding assets. The dollar and the euro declined against the yen after Russian President Dmitry Medvedev said before this week’s Group of Eight summit that the world is too reliant on the two currencies, damping the appeal of U.S. and European assets.
“The IKB news is a reminder there are still financial problems in Europe that imply the region may not be so safe” for investments, said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “It’s positive for the yen and a negative for the euro.”
The yen climbed to 133.57 per euro as of 6:24 a.m. in London from 134.26 last week in New York, after earlier rising to 132.96, the strongest level since June 23. Japan’s currency gained to 95.47 per dollar from 96.04. It strengthened 0.8 percent to 75.90 per Australia’s dollar and advanced 0.8 percent to 59.98 per New Zealand’s dollar.
The dollar was little changed at $1.3992 per euro from $1.3980, and rose to $1.6313 versus the pound from $1.6333.
G-8 Meeting
The dollar dropped to a one-week low against the yen after Russia and India said the global economy is too dependent on the U.S. currency and called for revisions in how $6.5 trillion in foreign-exchange reserves are managed, as G-8 leaders prepare to meet in Italy this week.
“The dollar system, or the system based on the dollar and euro, have shown that they are flawed,” Medvedev said in an interview with Italy’s Corriere della Sera, repeating his proposal for a new international reserve currency.
Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said in a July 3 interview that he is urging his nation to diversify its foreign holdings away from the dollar.
“Given the fact the developed countries lost the power to lead the global economy, we can’t ignore remarks from emerging economies, which now account nearly 14 percent to 15 percent of the global economy,” said Toshiya Yamauchi, manager of the foreign-exchange margin trading department in Tokyo at Ueda Harlow Ltd. “Mere speculation the G-8 nations will discuss the issue of the international reserve-currency system amid growing calls from emerging economies, will keep a lid on the dollar.”
‘Many Years’
China doesn’t support the idea of creating a supranational reserve currency and expects the U.S. dollar to remain the main reserve currency for “many years to come,” Deputy Foreign Minister He Yafei said on July 5.
Indonesia’s rupiah led losses in Asian currencies as regional shares dropped on concern earnings at European and U.S. companies will keep sliding. The rupiah weakened 0.4 percent to 10,230. The MSCI Asia-Pacific Index of regional shares slipped 0.2 percent and the Nikkei 225 Stock Average dropped 1.2 percent.
“Equity markets performance will of course play a part in currency performance with any further weakness likely to support the U.S. dollar and yen at the expense of the euro, the Australian dollar and the New Zealand dollar,” Robert Henderson, chief economist in Sydney at National Australia Bank Ltd., wrote in a research note today.
IKB, Ford Motor
The euro declined to a one-week low against the yen after IKB, Germany’s first victim of the subprime-mortgage crisis, said July 4 it will use retained earnings to lower the net loss to 78 million euros, wider than the prior-year loss of 11 million euros.
Earnings at U.S. companies such as Ford Motor Co. may keep declining in the next three months as the highest unemployment in a quarter-century deters consumers from spending, according to data compiled by Standard & Poor’s and Bloomberg.
The year-over-year profit slide for Standard & Poor’s 500 Index members may narrow to 21 percent from July through September, after declines of an estimated 34 percent in the second quarter and about 60 percent in the year’s first three months, according to data compiled by S&P and Bloomberg.
North Korea
The yen’s gains may be curbed after North Korea test fired seven short-range missiles on July 4, two days after launching four rockets, spurring condemnations from the U.S., South Korea and Japan.
“As long as North Korea is launching short-range missiles that can’t reach the territory of Japan, this geopolitical news which often weighs on the yen, will not affect the price action,” said Akira Takeuchi, a Tokyo-based currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh- largest banking group.
North Korea fired four short-range missiles on July 2 in defiance of United Nations sanctions imposed after a nuclear test. The communist nation has used such launches in the past to counter international condemnation of its nuclear program. The regime fired six short-range missiles in May, after its detonation of a nuclear bomb.
FX Concepts Inc., the world’s largest currency hedge fund, says it lost 5.4 percent in this year’s first five months. John W. Henry & Co.’s foreign-exchange fund told investors it lost 2 percent, after 2008’s 76 percent gain, the best since its 1986 launching.
Both use computer models to spot currency trends and, along with other momentum chasers, are getting hammered by this year’s lack of clear direction as the markets are pulled in opposing directions. Deflationary pressure from the first global recession since World War II is being countered by the inflationary forces of record stimulus spending and currency printing across the globe.
