FR: Japan Yen near strongest since 2001 against Euro on slowing growth
The yen traded near the strongest level in eight years against the euro as signs the global recovery is waning boosted demand for safer assets.
The Japanese currency was also close to an eight-week high against the dollar as Asian stocks declined before reports that economists said will show U.S. business activity expanded at a weaker pace and China’s manufacturing growth slowed. The euro headed for a quarterly loss against all of its major counterparts amid concern European banks will have to borrow at higher interest rates when they refinance central-bank loans.
“U.S. economic reports are losing momentum, while it will take time to resolve Europe’s sovereign debt issues,” said Yoshiaki Ota, head of the foreign-exchange trading group in Tokyo at Sumitomo Mitsui Banking Corp., a unit of Japan’s third- largest banking group. “Investors can’t buy the dollar or the euro, so they are turning to the yen as a last resort.”
The yen traded at 108.15 per euro as of 1:01 p.m. in Tokyo from 107.98 in New York yesterday, when it advanced to 107.32, the strongest since November 2001. Japan’s currency was at 88.57 per dollar from 88.60 yesterday when it climbed to 88.29, the highest since May 6. The euro was at $1.2212 from $1.2188.
The euro has fallen 14 percent versus the yen this quarter, the most since the last three months of 2008. Europe’s currency has slumped 9.6 percent against the dollar since March 31.
Global Growth
The Institute for Supply Management-Chicago Inc. will say today its business barometer fell to 59 this month from 59.7 in May, according to a Bloomberg survey of economists. Figures greater than 50 signal expansion. China’s Purchasing Managers’ Index dropped to 53.2 in June from 53.9 in May, according to another survey before tomorrow’s data.
“Investors are growing more concerned about the global recovery story, with talk of double-dip recession rising,” said Khoon Goh, a senior markets economist at ANZ National Bank Ltd. in Wellington. “The dollar and the yen are back in favor.”
The yen tends to strengthen during times of economic and financial turmoil because Japan’s trade surplus makes it less reliant on foreign funding. The dollar benefits as the world’s main reserve currency.
“Every economy slows down at some point,” said Marito Ueda, senior marketing director at FX PRIME Corp., a foreign- exchange margin company in Tokyo. “China can’t keep growing alone with others struggling. As risk sentiment declines, the yen is likely to advance.”
Best Performer
Japan’s currency has gained 13 percent this year, the biggest advance among its 10 developed-world counterparts, according to Bloomberg Correlation-Weighted Indexes. The dollar is up 7.4 percent, and the euro has dropped 10 percent, the biggest loss in the group.
The MSCI Asia Pacific Index of regional shares fell 1.4 percent today and the Nikkei 225 Stock Average dropped 2 percent.
The euro traded near a record low against the Swiss franc on speculation the health of Europe’s banks will be exposed today when the European Central Bank offers them three-month loans before a landmark 12-month facility has to be paid back.
Banks on July 1 need to repay 442 billion euros ($539 billion) under the ECB’s so-called Long-Term Refinancing Operation, a major part of its effort to contain the financial crisis. Demand for three-month cash may highlight how much banks still rely on the ECB for funding.
‘Hard Time’
“European banks seem to be having a very hard time in procuring funds,” said Toshihiko Sakai, head of trading for currencies and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., Japan’s largest financial group. “The bias is for the euro to be sold.”
Europe’s common currency was at 1.3222 francs from 1.3188 francs yesterday, when it declined to 1.3166, the weakest since the euro’s 1999 debut.
Gains in the yen were tempered on speculation Japanese investors are buying overseas assets in search of higher returns.
Finance companies in Japan are looking to raise at least 830 billion yen ($9.4 billion) for mutual funds, or toshin, focused on foreign assets today and tomorrow, according to data compiled by Bloomberg. Japanese investors were net buyers of 256.7 billion yen of overseas assets in the week ended June 18, according to figures released last week by the Finance Ministry.
“There are good-sized toshin launches today and tomorrow,” said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong. “This could offset some of the yen buying against the crosses.”
Losses in the dollar versus the yen were also limited as a gauge of momentum indicated the U.S. currency’s recent decline was excessive.
The 14-day relative strength index of the greenback versus the yen declined to 29.7. Readings below 30 indicate an asset’s value may have fallen too fast and be poised to rebound.
“We’re very oversold, so the market is potentially running out of downward momentum,” Andrew Chaveriat, a technical analyst in New York at BNP Paribas SA, said yesterday. “We’re vulnerable to a snapback reversal off these oversold levels.”
Euro Falls To Record Low Against Swiss Franc Below CHF1.32
The record-breaking rally in the Swiss franc continued Tuesday as the euro sank below CHF1.32, reaching its lowest level in history and breaking through another fresh psychological milestone.
The euro fell to a low of CHF1.3193 late Tuesday morning, according to EBS via CQG, in a continuation of a trend that has brought new record lows on an almost daily basis of late.
The Swiss currency has been climbing for months, with the move accelerating since the Swiss National Bank terminated its program of franc-limiting euro buying earlier this month. A rush away from the euro and a search for havens are behind the currency's climb.
The euro has declined by around 10% against the franc since the start of this year, although against a basket of currencies from Switzerland's major trading partners, the franc's climb is a more modest 6% or so.
Unless the central bank sees fresh signs that the franc's ascent is generating deflation by making imports cheaper, it appears set to stand back and leave the currency to the whim of market forces.
Francis Bray, chief technical analyst for Europe at Dow Jones Newswires said that on current chart patterns, the euro could be set to hit CHF1.3175 by the end of this week.
Technical strategists at Barclays Capital said recently that over the long term, a decline in the euro to parity against the Swiss franc "cannot be easily dismissed."
The euro rebounded modestly in subsequent trading and was at CHF1.3208 at 10:59 a.m. EDT (1459 GMT).
