BLBG:Yen Rises as Looming U.S. Shutdown Boosts Safety Bid; Euro Falls
The yen advanced against all of its major counterparts as political wrangling over the U.S. budget threatened a government shutdown from tomorrow, boosting demand for the Japanese currency as a haven.
The dollar extended its first quarterly drop versus the yen in a year with Congress deadlocked and a decision on raising the debt ceiling needed within three weeks. The euro dropped to the weakest level since May versus the Swiss franc as the potential collapse of Italian Prime Minister Enrico Letta’s government boosted demand for safety. The South African rand extended its longest run of quarterly declines in 12 years amid concern labor strikes will curb economic growth.
“With the government shutdown coming into sight, what is happening in the market is risk aversion and the yen is rising,” said Kengo Suzuki, the chief currency strategist in Tokyo at Mizuho Securities Co. “Concerns that Congress would also fail to agree on raising the federal debt limit may accelerate risk aversion in the near-term.”
The yen advanced 0.4 percent to 97.88 per dollar at 10:13 a.m. London time, after touching 97.53 yen, the strongest since Aug. 29. Japan’s currency added 0.5 percent to 131.17 versus the euro after appreciating to 131.38, the strongest since Sept. 9. The euro was little changed at $1.3503.
Dollar Diving
The yen has advanced 1.4 percent in the past week, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar rose 0.3 percent and the euro climbed 0.4 percent. Switzerland’s currency added 0.9 percent.
Over three months, the U.S. currency has fallen 3.5 percent, paring this year’s advance to 2.7 percent. Japan’s currency fell 2.1 percent, extending its decline since Dec. 31 to 10 percent, while the euro is up 0.6 percent and 5.4 percent.
In the U.S., Congress has one day to end a stalemate that raises the risk of the first government shutdown in 17 years and threatens talks to increase the debt limit.
Failure to approve funding to keep the government open and to raise the debt ceiling would have a destabilizing effect on the economy, President Barack Obama said in a televised statement on Sept. 27. Closing the government would cut fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, according to economists from Moody’s Analytics Inc. to Economic Outlook Group LLC.
‘Farce Reigns’
“Farce reigns and risk aversion rises,” Kit Juckes, the global strategist at Societe Generale SA in London, wrote in a note to clients. “The U.S. is still heading towards a shutdown, the Italian government is heading for a confidence vote that probably precedes elections. Yen up, euro down.”
Hedge funds and other large speculators betting on a gain in the U.S. dollar against currencies traded on the CME Group Inc. reduced net positions last week to the lowest since April, according to data from the Washington-based Commodity Futures Trading Commission.
The cumulative net speculative dollar longs -- in the CME Group’s yen, euro, Swiss franc, British pound, Mexican peso, Australian, New Zealand and Canadian dollar contracts -- fell to 38,471 in the week ended Sept. 24, the least since April 30.
Italian Prime Minister Letta said he will ask for a vote of confidence on Oct. 2, speaking on Rai 3 television. The Italian government has been torn apart by legal troubles facing former leader Silvio Berlusconi, whose criminal tax-fraud conviction subjects him to expulsion proceedings in parliament. Berlusconi allies have said they planned to quit the cabinet.
Fresh Elections
Europe’s common currency slipped as much as 0.3 percent to 1.2214 per franc, the weakest since May 3, before trading at 1.22191. It has declined 0.6 percent since June 28, set for its first quarterly drop since December.
“Fresh elections thus may be inevitable, a potentially very toxic development for markets given the space it would create for anti-euro, anti-austerity sentiment to rise yet further,” Richard Franulovich, a New York-based currency strategist at Westpac Banking Corp. (WBC), wrote in a research note dated today. “Neither the euro nor the U.S. dollar have much going for them this week.”
The yen strengthened before Japanese Prime Minister Shinzo Abe is due to outline his plans tomorrow for taxes and an economic-support package. Japan is set to raise its sales tax next year for the first time since 1997, and Abe may introduce a stimulus plan to offset the resulting drag on growth.
A rise in sales tax could spur yen gains unless balanced by measures to support growth, said Stan Shamu, a market strategist at IG Ltd. in Melbourne. “Talk of an urgent call for a corporate tax cut has been suddenly quashed,” he said.
South Africa’s rand fell 0.1 percent to 10.1012 per dollar, pushing its drop since the end of June to 2.2 percent, the worst performer among the 16 major currencies tracked by Blomberg. The rand was little changed at 13.6341 against the euro, down 5.7 percent this quarter.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
