Yen Trades Near 1-Month Low as Japan Investors Seek High Yield

By Kosuke Goto

July 30 (Bloomberg) -- The yen traded near a one-month low against the dollar on speculation Japanese investors will spend their summer bonuses on overseas assets offering higher yields.

The currency may fall for a second day as Japanese finance companies seek to raise about 380 billion yen ($3.5 billion) in the remainder of this week for funds investing abroad, according to data compiled by Bloomberg. The dollar traded near a one- month high versus the euro as an increase in U.S. consumer confidence damped concern the economy will slip into recession.

``Emerging markets are constantly attracting Japanese individual money,'' said Daisaku Ueno, a senior economist and currency analyst in Tokyo at Nomura Securities Co., Japan's largest brokerage. Given Japan's low interest rates, ``there is no reason the yen can be stronger,'' he said.

Japan's currency traded at 108.03 per dollar at 10:19 a.m. in Tokyo from 108.11 in New York yesterday, when it fell to 108.29, the weakest level since June 25. The yen was also at 168.29 per euro from 168.53. The dollar traded at $1.5580 per euro, little changed from yesterday, when it climbed to $1.5554, the strongest level since June 25.

Japan's currency may weaken to 110 a dollar by year-end, Ueno said. The yen was little changed after a government report showed Japan's industrial production fell last month.

HSBC Investments will seek to raise 50 billion yen for a fund focused on Brazil's stocks tomorrow. Nomura Asset Management will seek 60 billion yen for global stocks on Aug. 1.

The Bank of Japan's target lending rate of 0.5 percent is the lowest among industrialized economies, making assets outside of the country more attractive to domestic investors.

Cheaper Oil

Implied volatility on one-month dollar-yen options fell to 10.17 percent from 10.73 percent a week earlier. Lower volatility may encourage so-called carry trades, in which investors borrow in countries with low interest rates and buy assets where returns are higher.

The dollar may rise for a second day against the euro after crude oil dropped to a 12-week low of $120.42 a barrel yesterday, helping drive U.S. stocks higher. The euro-dollar exchange rate and oil often move in the same direction, having had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

``The dollar rate continues to move on U.S. stocks and oil prices,'' Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. ``Should global stocks remain firm and oil prices keep falling, the dollar-yen will also remain firm.''

`Bearish' Sentiment

The euro may decline to $1.53 should it drop below $1.5575, breaking through a trend line that tracks the currency's rally starting in August 2007, wrote Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London, in a research note yesterday.

``Sentiment is turning more bearish'' on the euro after it failed to hold at the 100-day moving average of $1.5665, wrote Edgeley, who uses charts to predict currency moves.

Traders reduced bets the European Central Bank will raise its 4.25 percent main refinancing rate this year. The implied yield on the December Euribor futures contract dropped to 5.08 percent yesterday, from 5.12 percent on July 28.

``Lower oil prices remove some ECB concerns about higher inflation,'' said Bank of America's Sinche.

Inflation in the countries that use the euro accelerated to 4.1 percent this month, following an increase to 4 percent in June, according to the median forecast of 36 economists surveyed by Bloomberg News. The report from the European Union's statistics office is due tomorrow.

Confidence Improved

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, was at 73.268 from 73.309 yesterday, when it reached 73.428, the highest since June 24.

The New York-based Conference Board reported yesterday that its U.S. consumer confidence index rose this month to 51.9, higher than economists forecast, from a revised June reading of 51, the lowest since February 1992.

U.S. companies cut 60,000 jobs in July, following a reduction of 79,000 in June, according to the median forecast of 29 economists surveyed by Bloomberg News. The report from ADP Employer Services is due at 8:15 a.m. New York time.

Non-farm payrolls dropped by 75,000 this month following a decline of 62,000 in June, according to the median forecast of economists in a separate survey. The report from the Labor Department is scheduled to be released Aug. 1.

To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net.