Yen Falls to 12-Week Low Against Dollar as Haven Allure Weakens

By Ron Harui and Yasuhiko Seki

Feb. 24 (Bloomberg) -- The yen fell to a 12-week low against the dollar before government reports this week that may show the world’s second-largest economy is deteriorating, reducing the allure of the currency.

Japan’s currency also approached the weakest level in a month versus the euro after Prime Minister Taro Aso’s approval rating slumped 6.8 percentage points to 11.4 percent in a survey published today by Sankei newspaper. The dollar declined versus the euro on speculation a U.S. report today will show home prices fell at the fastest pace on record in December.

“The yen appears to be losing some of its safe-haven status,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Japan’s economic and political situation is poor. The yen is weakening.”

Japan’s currency fell to 95.21 per dollar as of 7:49 a.m. in London from 94.61 yesterday in New York. It touched 95.35 today, the weakest level since Dec. 1. The yen has dropped 8.4 percent since hitting a 13-year high on Jan. 21. Japan’s currency declined to 121.29 per euro from 120.10 yesterday, when it reached 121.93, the lowest since Jan. 19.

The dollar dropped to $1.2739 per euro from $1.2694 yesterday. It fell to $1.4533 against the British pound from $1.4487 and traded at 1.1640 Swiss francs from 1.1686. Against the pound, the euro was at 87.66 pence from 87.57 pence.

Asian Currencies

Asian currencies declined against the dollar, with the South Korean won approaching an 11-year low, after a slide in U.S. stocks spurred investors to cut holdings of emerging-market assets. The won lost 1.8 percent to 1,516.30, according to Seoul Money Brokerage Services Ltd. The Nikkei 225 Stock Average fell 1.5 percent after the Standard & Poor’s 500 Index slipped yesterday to the lowest close since 1997.

“The global rout in equities is expected to see a more supported dollar against Asian currencies,” Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore, wrote in a research note today.

Japan’s currency declined for a fifth day against the euro, the longest stretch since September, before a Ministry of Finance report tomorrow that may show the trade deficit widened to 1.2 trillion yen ($12.7 billion) in January, according to a Bloomberg News survey. That would be the largest in 23 years.

Japan’s core consumer prices probably fell for the first time in more than a year in January, economists surveyed by Bloomberg predict a government report will show on Feb. 27.

The yen also dropped as the relationship between the currency and equity markets has weakened, according to National Australia Bank Ltd., Australia’s biggest lender by assets.

‘Breakdown’ in Correlation

“A breakdown in the correlation between the yen and stock markets and the likely longer-term nature of the deterioration in Japan’s current-account surplus suggest that the currency is losing its ‘safe haven’ appeal,” John Kyriakopoulos, head of currency strategy at National Australia Bank in Sydney, wrote in a research note today.

The dollar-yen now moves in the opposite direction to the Nikkei 225, compared with the same direction about a week ago, according to data compiled by Bloomberg. The correlation between the two has been minus 0.89 since Feb. 16 when Japan’s gross domestic product report was released. The relationship was positive 0.86 in the 12 months to Feb. 16. A reading of 1 would mean the two moved in lockstep.

Demand for the yen as a haven also declined after U.S. financial regulators said yesterday they will begin examinations this week to determine if banks have enough capital. Citigroup Inc. and Bank of America Corp. jumped on the announcement even as the S&P 500 closed at the lowest level in 12 years.

‘Help Stabilize’

“The injection of additional capital into banks should gradually help stabilize the financial system in the U.S., which is saddled with a bad-debt problem,” said Masashi Hashimoto, a Tokyo-based foreign-exchange analyst at Bank of Tokyo Mitsubishi UFJ Ltd., an unit of Japan’s biggest banking group. “This will support the dollar” against the yen, he said.

The dollar dropped against the euro on concern an industry report today will show U.S. home prices fell the most since year-on-year records began in 2001.

The S&P/Case-Schiller index of house prices in 20 cities declined 18.3 percent in December from a year earlier, according to a Bloomberg News survey of economists before the report due at 9 a.m. in Washington.

“U.S. economic data due this week may underscore the unabated decline of the housing market, which should bode ill for the dollar,” said Shinya Furue, an economist in Tokyo at Norinchukin Research Institute Ltd. “If the housing data are weak enough, the dollar may fall back to between 90 yen and 92 yen.”

Business Confidence

The ICE’s Dollar Index, which tracks the greenback against six major trading partners including the euro and the yen, dropped 0.2 percent to 87.075. It reached 88.254 on Feb. 18, the highest level since Nov. 21.

Federal Reserve Chairman Ben S. Bernanke is scheduled to deliver his semi-annual monetary policy report before the Senate Banking Committee today and before the House Financial Services Committee tomorrow.

Demand for the euro may wane on speculation a German report will show business confidence held near the lowest level in more than 26 years, backing the case for the European Central Bank to lower interest rates.

The Ifo Institute report today will show the business climate index held at 83 in February, close to the weakest since November 1982, a separate Bloomberg survey showed. The Ifo will release the report at 10 a.m. in Munich.

“Given mounting economic challenges in the eurozone and neighboring countries, the European Central Bank is unlikely to be able to signal an end to the rate cutting cycle,” said Yousuke Hosokawa, a senior foreign-exchange dealer at Chuo Mitsui Trust and Banking Co. in Tokyo. “This may potentially be a euro negative.”

To contact the reporters on this story: Ron Harui in Tokyo at rharui@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.