BLBG:Euro Drops as Catalan Parties Strengthen Their Position
The euro fell, snapping a five-day gain, after pro-independence parties in Catalonia won a regional vote, strengthening a drive for a referendum on secession in defiance of Spanish Prime Minister Mariano Rajoy.
The 17-nation euro declined against most of its 16 major peers amid concern Spain may postpone asking for a bailout amid political uncertainty. Finance ministers from the bloc will reconvene in Brussels today to decide on aid for Greece. The yen rebounded from a seven-month low as a technical indicator signaled the currency may be oversold. Gains in the yen were limited after the minutes of last month’s Bank of Japan (8301) policy meeting showed members called for monetary easing.
“Spain will continue to delay asking for financial assistance,” said Masafumi Yamamoto, the Tokyo-based chief foreign-exchange strategist at Barclays Plc. “The election result is not positive for the euro. The market may shift its focus to Spain and the poor economic fundamentals in Europe once we confirm aid for Greece.”
The euro fell 0.2 percent to $1.2952 as of 6:56 a.m. in London from Nov. 23, when it capped a 1.8 percent five-day advance. The shared currency earlier touched 107.14 yen, the highest level since April 27, before trading at 106.41, 0.5 percent below the close in New York on Nov. 23. The Japanese currency added 0.3 percent to 82.13 per dollar from the end of last week. It reached 82.84 Nov. 22, the weakest since April 4.
Separatist Majority
Catalan President Artur Mas, who called early elections to force the debate on independence, won 50 of the 135 seats in the regional assembly for his Convergencia i Unio party, down from 62, with 99 percent of the vote counted. The separatist Catalan Republican Left, known as the ERC, more than doubled its seats to 21 from 10. Two smaller parties that also back a plebiscite secured 16 seats.
Mas has pledged a referendum within four years. In contrast, the ERC would be willing to declare independence unilaterally in 2014.
Elsewhere in Europe, finance chiefs from the 17-member single currency return to Brussels today, less than a week after an all-night meeting failed to yield agreement and days after a European Union summit broke up without a proposed seven-year budget. At stake at the euro meeting is the continuation of a three-year mission to return Greece to financial health.
“It would be irresponsible not to reach an accord given all the efforts that have been made on all sides,” French Finance Minister Pierre Moscovici said late yesterday on BFM television. “I’m not going to guarantee that an accord will be reached, but I think the third time should be the charm.”
Recessionary Phase
Demand for the yen was limited amid speculation a general election next month will hand power to the opposition party that advocates aggressive monetary stimulus by the BOJ.
A few members of the central bank’s policy board said Japan’s economy entered a recessionary phase, while one indicated the need for new ways to boost price expectations, minutes of the Oct. 30 meeting published today showed. The BOJ last month increased asset purchases by 11 trillion yen ($134 billion), announced a new lending program and signed a joint statement with the government on ending deflation.
“There is a clear idiosyncratic yen weakening trend in play,” John Horner, a currency strategist at Deutsche Bank AG in Sydney, said in a Bloomberg Television interview. A “changing political landscape and the prospects of more aggressive Bank of Japan action in the near future all look to keep the yen under pressure for the time being.”
Horner said he expects the yen to weaken to 86 per dollar by mid-2013 and 90 by the end of next year.
Japan’s Election
Prime Minister Yoshihiko Noda and opposition leader Shinzo Abe will take part in a debate prior to next month’s lower house elections. Noda, whose ruling Democratic Party of Japan trails in opinion polls, and Abe, who in 2007 resigned the premiership for health reasons after one year, face each other Nov. 29 in an event to be broadcast via the Internet, they said Nov. 25 on a TV Asahi program.
The opposition Liberal Democratic Party out-polled the ruling DPJ 25 percent to 16 percent in a Nikkei newspaper poll conducted Nov. 16. The LDP’s Abe has focused his campaign on policies to combat deflation and the strong yen, while taking a harder line on a territorial dispute with China.
“While Japan’s political situation is provoking yen weakness, the BOJ continues to lean toward monetary easing,” said Kengo Suzuki, currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “It’s possible that the BOJ will announce additional stimulus before year-end. The yen may weaken further.”
The 14-day relative strength index for the yen against the dollar was below 30 for a sixth day today, the level that some traders see as a sign an asset’s decline has been too rapid and is about to change direction.
Japan’s currency fell 3.7 percent in the past month, the worst performer among 10-developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro lost 0.1 percent in the same period, while the dollar declined 0.3 percent.
To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
