BLBG:Yen Weakens After Japan Reports Annual Trade Deficit; Aussie Dollar Rises
The yen weakened against all but one of its 16 major counterparts after Japan reported its first annual trade deficit in 31 years, stoking concern the country’s fiscal health may deteriorate.
The yen slid to the weakest level in four weeks against the dollar after data showed Japan’s exports declined for a third consecutive month. Australia’s dollar climbed against the yen after the nation’s core inflation accelerated more than forecast. The pound weakened as Britain’s economy shrank more than economists estimated in the fourth quarter.
“Data confirming that Japan’s trade balance slipped into deficit territory for 2011 for the first time since 1980 probably supported the dollar against the yen,” said Chris Walker, a currency strategist at UBS AG in London.
The yen depreciated 0.6 percent to 78.13 per dollar at 10:38 a.m. London time after reaching 78.14, the weakest since Dec. 26. The euro climbed as high as 101.89 yen, the strongest since Dec. 27, before trading at 101.47. The 17-nation currency slid 0.4 percent to $1.2988. It reached $1.3063 yesterday, the highest level since Jan. 4.
Japan’s exports dropped 8 percent in December from a year earlier, the Ministry of Finance said today. The median estimate of 27 economists surveyed by Bloomberg News was for a 7.4 percent decline. The figures show the impact of slower global growth and March’s earthquake on the economy. Declines in shipments from Japan resulted in a 2011 trade deficit of 2.49 trillion yen ($32 billion).
‘Turning Point’
The dollar has strengthened 1.6 percent against the yen so far this year after depreciating 5.2 percent last year and almost 13 percent in 2010.
“We could be at some kind of long-term turning point on dollar-yen, although I think it might turn like an ocean liner rather than a speed boat,” said Paul Day, chief strategist at Market Securities in London. “The thing which will make me believe we can break out of this down-slide is if we close above 78.50 this month.” If that were to happen the dollar could climb as high as 95.85 yen, he said.
Japan wouldn’t be able to manage its finances if government bond yields surged to 3 percent, Prime Minister Yoshihiko Noda said this month. The country risks seeing a spike in yields unless it controls the outstanding borrowing, set to approach 230 percent of gross domestic product in 2013, the Organization for Economic Cooperation and Development said on Nov. 28.
Fed Meeting
Demand for the dollar was limited amid speculation the Federal Open Market Committee will maintain a pledge to keep its benchmark interest rate near zero at its meeting today.
The Fed said last week it will provide two charts with the forecasts for the benchmark rate after the meeting of policy makers. The central bank left the target for overnight loans between banks in a range of zero to 0.25 percent last month and reiterated that economic conditions may warrant “exceptionally low” rates “at least” through mid-2013. It will keep the key rate unchanged today, according to a Bloomberg survey.
“The FOMC meeting could be negative for the U.S. dollar against other currencies, but positive against the yen,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “If they explicitly say they’re going to leave the Fed funds rate at a record low for a very long time, even though the market already knows that and expects it, it may be positive for risk markets.”
U.K. GDP
Sterling fell from a three-week high versus the dollar as a report showed U.K. gross domestic product contracted 0.2 percent in the fourth quarter from the previous period, compared with a drop of 0.1 percent forecast by 33 economists in a Bloomberg News survey.
The U.K. currency slid 0.2 percent to $1.5588 after climbing to $1.5628. It was little changed at 83.32 pence per euro.
Implied volatility of three-month options of Group of Seven currencies rose to 10.66 percent, the most since Jan. 17, according to the JPMorgan G7 Volatility Index. An increase makes investments in currencies with higher benchmark lending rates less attractive as the risk in such trades is that market moves will erase profits.
The yen has fallen 2.3 percent in the past week against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar has depreciated 0.5 percent while the euro has gained 0.6 percent.
Australia’s dollar rose to a 12-week high against the yen after one of the Reserve Bank’s measures of underlying inflation gained more than estimated, boosting speculation the central bank may have less scope to cut borrowing costs.
The so-called trimmed mean advanced 0.6 percent in the three months through December, compared with an analyst forecast for a 0.5 percent increase. The headline consumer prices figure was unchanged in the fourth quarter compared with the previous three-month period.
Aussie Dollar Advances
Australia’s dollar climbed 0.5 percent to 81.87 yen after earlier advancing to 82.15, the highest level since Nov. 1. The so-called Aussie dollar was little changed at $1.0479.
The Swiss franc was little changed after reaching a four- month high yesterday as Swiss central bank governing board member Jean-Pierre Danthine said the currency should weaken over time.
The franc was at 1.2089 per euro after advancing to 1.2058 yesterday, the strongest level since Sept. 20, two weeks after the Swiss National Bank set a cap of 1.20 per euro. The franc weakened 0.3 percent against the dollar to 93.07 centimes
The SNB will “continue to enforce the minimum rate with the utmost determination and remains prepared to buy foreign currency in unlimited quantities,” Danthine said at an event in Zurich yesterday. “The Swiss franc is still highly valued, but it should depreciate further in the future.”
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
