The yen rose against all its major peers on speculation Japan will refrain from intervening to weaken its currency ahead of this week’s meeting of policy makers from Group of 20 nations. Japan’s currency traded near the strongest level in more than 15 years versus the greenback before a report tomorrow forecast to show U.S. housing starts fell, supporting the case for additional monetary easing. The euro slid for a second day against the dollar before data that may show investor confidence in Germany is near the lowest level in 21 months. “The so-called currency war issue is likely to be discussed at the G-20 meeting, which will make it harder for Japanese authorities to carry out any intervention,” said Toshiya Yamauchi, a senior currency analyst at Ueda Harlow Ltd. in Tokyo. “The yen may test the all-time high of 79.75 versus the dollar if there’s no threat of intervention.” The yen strengthened to 81.22 per dollar as of 8:29 a.m. in London, from 81.45 in New York on Oct. 15, when it touched 80.88, the strongest level since April 1995 and near its post- World War II high of 79.75 yen reached the same month. The euro fell to $1.3878, from $1.3977 on Oct. 15, when it reached $1.4159, the most since Jan. 26. The euro sank to 112.49 yen, the least since Sept. 24, before trading at 112.69 yen, from 113.88 last week. Finance ministers and central bankers of the G-20 nations are due to meet on Oct. 22 and 23 in South Korea. South Korea will also host a summit meeting of top politicians from the G-20 nations next month. ‘Devaluation Race’ European Central Bank Chief Economist Juergen Stark said it would be “fatal” if the world’s currency areas were to engage in a “devaluation race,” Handelsblatt reported last week, citing an interview. Competitive devaluations can lead to protectionism, one of the main causes of the world economic crisis during the 1930s, Stark told the newspaper. The G-20 nations must take the lead to prevent a global “currency war” in which each country tries to weaken its currency at the expense of others, South African Finance Minister Pravin Gordhan said last week. South Korea will focus on working out currency tensions between countries at the G-20 summit it will host in November, the JoongAng Ilbo reported, citing a government official it didn’t identify. Japan plans to set up a Cabinet Office study group to examine how to increase the amount of trade settled in yen so as to minimize the impact of currency fluctuations, Kyodo News reported yesterday, citing Economy Minister Banri Kaieda. ‘Strong Yen’ Kaieda’s comments “spurred speculation that Japan would simply accept a strong yen,” said Takashi Kudo, general manager of market information service at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. in Tokyo. The Federal Reserve will release on Oct. 20 its Beige Book survey of regional Fed banks. Last month, the report found the economic rebound showed signs of slowing. Minutes of the Fed’s September meeting released on Oct. 12 indicated that policy makers were poised to take more easing steps “before long.” U.S. builders broke ground on 580,000 homes at an annual rate in September, down 3 percent from the previous month, according to a Bloomberg News survey of economists before tomorrow’s data. Futures on the CME Group exchange show a 32 percent chance the Fed will cut its target rate for overnight bank lending to zero by November, up from a 24 percent probability a month ago. The rate is currently in a range from zero to 0.25 percent. ZEW Report The euro declined before a German report tomorrow that may show investor confidence dropped for a sixth month in October, adding to signs the 16-nation region’s recovery may be slowing. The ZEW Center for European Economic Research in Mannheim will say its index of investor and analyst expectations, which aims to predict developments six months ahead, dropped to minus 7 in October, the least since January 2009, according to a Bloomberg News survey of economists. “The longer the euro stays far above its long-term fair value levels of $1.20, the faster the economy will suffer another downturn,” Mansoor Mohi-uddin, Singapore-based chief currency strategist at UBS AG, wrote in an e-mail. Current Account Surplus The yen has gained 84 percent against a basket of the most- traded currencies since the start of 1986, including a 13 percent gain in 2010, as the nation posted a surplus every year in its current account, the broadest measure of trade. Unlike the U.S. or the 16-nation euro region, Japan doesn’t rely on foreign capital to finance its budget deficit. As a result, money is flowing into Japan from traders concerned about indebted nations’ funding as growth in the global economy slows. Bets the currency will strengthen were about the highest this year, even after the Bank of Japan sold 2 trillion yen last month in its first intervention since 2004. The central bank and Ministry of Finance say Japan needs a weaker currency to bolster exports. “Any attempts to weaken the yen will be futile,” said Richard Franulovich, a senior foreign-exchange strategist at Westpac Banking Corp. in New York. “Intervention, when it fights against the underlying fundamentals of a currency, is doomed to fail.” To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

Source