Yen Rises as Weakening Economy Cuts Appetite for Higher Yields Email | Print | A A A

By Ye Xie and Bo Nielsen

Dec. 3 (Bloomberg) -- The yen rose against the dollar and the euro as a report showed U.S. companies eliminated more jobs last month than forecast, prompting investors to sell higher- yielding assets and pay back low-cost loans in Japan’s currency.

Japan’s yen gained against the pound after a report showed U.K. consumer confidence slid last month to the weakest in at least four years. The euro fell against the dollar as economists forecast the European Central Bank will cut its main refinancing rate by a half-percentage point to 2.75 percent tomorrow.

“We still get poor economic data, and you’ve got to think there’s danger there,” said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. “Until we get stabilization in both financial markets and economic data, it’s difficult to see any significant reversal of the gains in the yen.”

The yen rose 1.2 percent to 117.13 versus the euro at 8:45 a.m. in New York, from 118.44 yesterday. Japan’s currency gained 0.3 percent to 92.94 per dollar from 93.18. The euro lost 0.6 percent to $1.2637 from $1.2714.

U.S. companies eliminated 250,000 jobs in November after a reduction of 179,000 in the prior month, ADP Employer Services reported today. The median forecast of 22 economists surveyed by Bloomberg News was for a cut of 205,000 from a previously reported 157,000.

The Labor Department’s November jobs report, due Dec. 5, may show the biggest one-month payroll drop since the 2001 terrorist attacks, according to a Bloomberg survey.

U.S. Productivity

Productivity, a measure of employee output per hour, rose at a 1.3 percent annual rate in the third quarter, compared with a 1.1 percent gain estimated last month, revised figures from the Labor Department in Washington showed. Labor costs climbed at a 2.8 percent rate, less than the 3.6 percent pace forecast.

European retail sales declined by a worse-than-expected 2.1 percent in October from a year earlier, the European Union’s statistics office reported. A Bloomberg News survey had predicted a 1.5 percent decline.

Europe’s Dow Jones Stoxx 600 Index lost 1.6 percent. More than $32 trillion has been erased from the value of global equities since the U.S. mortgage market’s collapse sparked financial turmoil.

The yen also rose against the New Zealand dollar and the Swedish krone. It typically gains when investors reverse so- called carry trades, where they borrow funds in a country with low interest rates and invest in those with higher lending rates. The benchmark interest rate of 0.3 percent in Japan compares with 3.25 percent in the euro region, 6.5 percent in New Zealand and 3.75 percent in Sweden.

‘Risk Appetite’

“The lack of good news seems likely to weigh on risk appetite,” wrote Adrian Schmidt, a London-based senior foreign- exchange strategist at Royal Bank of Scotland Group Plc, the fourth-biggest currency trader.

Standard & Poor’s 500 Index futures slipped 1.9 percent after the index rose 4 percent yesterday.

The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 42, the lowest level since records began in 1997, according to the median forecast in a Bloomberg News survey. The report is due at 10 a.m. New York time. Readings below 50 indicate a contraction.

The U.S. economy entered a recession in December 2007, the first since 2001, the National Bureau of Economic Research said on Dec. 1.

‘Disappointing’ Data

“There is a risk that the dollar will go lower,” said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan’s second- largest publicly traded lender. “Disappointing economic data would highlight the extent of the U.S. recession and undermine confidence in buying the dollar.”

The pound fell for a third day against the euro after a report showed U.K. consumer confidence slid last month, giving the Bank of England more reason to cut interest rates tomorrow.

An index of sentiment fell 6 points to 50, the lowest since the survey began in May 2004, Nationwide Building Society, Britain’s second-biggest mortgage lender, said today. The BOE is forecast by economists to lower its main rate by one percentage point to 2 percent. The pound dropped 0.2 percent to 85.44 pence per euro.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net