Yen Gains on Concern Recession Will Spur Repatriation of Funds

By Stanley White and Ron Harui

Dec. 1 (Bloomberg) -- The yen rose against the dollar and euro on speculation a global recession will encourage domestic investors to bring back overseas earnings.

The currency also advanced versus the British pound and the Australian dollar after reports showed slumping South Korean exports, shrinking Chinese factory orders and falling Japanese wages. The dollar fell against the yen before U.S. reports this week that economists predict will show manufacturing shrank and employers cut jobs by the most since 2001.

“When the economic climate is poor, Japanese investors tend to repatriate capital during periods of risk aversion,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney.

The yen climbed 0.2 percent to 120.93 per euro at 7:33 a.m. in London from 121.22 late in New York on Nov. 28. It advanced to 95.29 versus the dollar from 95.52. The euro fell to $1.2692 from $1.2691.

The pound lost 0.6 percent to 146.07 yen, the Australian dollar slid 1.4 percent to 61.68 yen, and the New Zealand dollar declined 1.7 percent to 51.49 yen.

The MSCI Asia Pacific Index of regional shares fell 0.5 percent, snapping a four-day gain, while the Nikkei 225 Stock Average dropped 1.4 percent. Shares in Inpex Corp., Japan’s biggest oil explorer, lost 4.4 percent on speculation China’s contraction in manufacturing will reduce demand for commodities.

Japanese Investors

Japan’s benchmark interest rate of 0.3 percent compares with 5.25 percent in Australia, 6.5 percent in New Zealand, 4 percent in South Korea and 3 percent in the U.K. A global recession may make investing in higher-yielding overseas assets more risky for Japanese investors.

China’s purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today. South Korean exports tumbled 18.3 percent in November from a year earlier.

A recession in Japan deepened last month as manufacturers planned the sharpest production cuts in 35 years and consumers cut spending. Japanese companies plan to fire about 30,000 temporary and part-time workers before the end of the business year in March, the ministry said last week. Monthly wages, including overtime and bonuses, fell 0.1 percent in October to 274,751 yen ($2,883) from a year earlier, the Labor Ministry said in Tokyo.

Emergency Meeting

The Bank of Japan will hold an emergency meeting this week to consider accepting a broader range of collateral from lenders as a way to help companies obtain funding, public broadcaster NHK said without citing anyone.

Since the opening of Japan’s first national tourism agency on Oct. 1 to attract more Asian travelers, the yen has risen 36 percent against Korea’s won, 35 percent versus Australia’s dollar and 15 percent to Taiwan’s currency, making it more expensive for overseas tourists to visit.

The number of travelers from South Korea, the biggest visitors to Japan, fell 21 percent in September from a year earlier. Tourists from Taiwan, which ranks second, declined 13 percent, according to the Japan National Tourist Organization, an industry-backed group.

The dollar has declined 3.2 percent versus the yen in the past month. U.S. nonfarm payrolls shrank by 320,000 in November following a decline of 240,000 the previous month, according to a Bloomberg News survey before the Labor Department’s Dec. 5 report. The jobless rate may have jumped to 6.8 percent, the highest level since 1993, a separate Bloomberg survey showed.

‘Dollar Depreciation’

“People may look more closely at the U.S. economy, so there’s some scope for dollar depreciation,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “Higher-yielding currencies are losing their appeal because the interest-rate differential isn’t working in their favor.”

The Institute for Supply Management may say manufacturing contracted in November for a fourth month, according to another Bloomberg survey. The Tempe, Arizona-based Institute releases the data at 10 a.m. in New York.

The euro declined against the dollar and the yen as traders bet the European Central Bank will reduce borrowing costs this week in response to the recession.

Europe’s inflation rate fell to 2.1 percent in November from 3.2 percent the previous month, a Nov. 28 report showed, giving policy makers more room to lower borrowing costs when they meet Dec. 4.

‘Increasingly Rapid’

“European data continue to deteriorate at an increasingly rapid pace and the recent easing of inflation pressures means there is scope for a bold cut by the ECB,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “For euro-dollar, this suggests a visit to the recent lows of between $1.2300 and $1.2400 is likely.”

Producer prices in Europe fell 0.3 percent in October from the previous month, after a 0.2 percent decline in September, according to a Bloomberg survey of economists before the report tomorrow. Retail sales dropped 0.4 percent in October from the prior month, after a 0.2 percent decline in September, a separate Bloomberg survey shows. The report is due Dec. 3.

Traders increased bets the ECB will cut its 3.25 percent benchmark rate. The implied yield on Euribor futures contracts expiring in June declined to 2.42 percent on Nov. 28 from 2.44 percent on Nov. 27.

-- With reporting by Toshiro Hasegawa and Shintaro Inkyo in Tokyo. Editors: Simon Harvey, Nicholas Reynolds

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.