Yen Gains Most in Three Weeks on Speculation Exporters Buying

By Ron Harui and Yasuhiko Seki

Feb. 9 (Bloomberg) -- The yen rose the most in almost three weeks against the dollar on speculation Japanese exporters bought the currency after it dropped to a one-month low.

Japan’s currency also gained for the first time in three days versus the euro as Asian stocks declined, spurring investors to trim holdings of higher-yielding assets funded in yen. The pound weakened, ending a four-day rally, after the U.K.’s biggest business lobby published a survey showing 63 percent of the nation’s companies said access to credit worsened in the last three months.

“There’s talk that exporters are purchasing the yen,” said Akifumi Uchida, deputy general manager in Tokyo at the marketing unit at Sumitomo Trust & Banking Co., Japan’s fifth- largest bank. “They probably compared the yen’s level today to what it was one month ago, and came into the market to buy.”

The yen rose 0.8 percent to 91.16 per dollar as of 7:55 a.m. in London from late in New York last week, the biggest gain since Jan. 20. It earlier fell to 92.42, the lowest level since Jan. 8. The currency climbed 1 percent to 117.67 per euro from 118.85.

Europe’s single currency weakened to $1.2908 from $1.2940 last week, and traded at 87.61 British pence from 87.52 pence. The pound declined 0.4 percent to $1.4733.

The Nikkei 225 Stock Average dropped 1.3 percent after rising as much as 2.2 percent. Futures on the Standard & Poor’s 500 Index slid 1.1 percent.

The yen advanced versus all of the 16 most-active currencies today. Against the yen, Australia’s dollar fell 2 percent to 60.80, South Africa’s rand declined 2.5 percent to 9.3667 and New Zealand’s dollar weakened 1.1 percent to 48.33.

Net Longs

Futures traders increased bets to the most since April that the yen will strengthen against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- climbed to 50,518 on Feb. 3, the highest level since April 29, compared with net longs of 49,007 a week earlier.

Implied volatility on one-month dollar-yen options climbed to 18.58 percent from 18.12 percent on Feb. 6, indicating a greater risk of exchange-rate fluctuations that can erode profit on so-called carry trades. In these trades, investors get funds in a country with low borrowing costs and invest in another with higher rates.

Japan’s currency also strengthened on speculation local investors brought home some of their overseas earnings before the nation’s fiscal year ends on March 31.

‘Under Pressure’

“The dollar may remain under pressure as Japanese firms repatriate funds back into Japan as they prepare for book closing in March,” said Nobuaki Kubo, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co.

The yen weakened earlier on speculation the administration of U.S. President Barack Obama will make progress with its bank- rescue and economic-stimulus plans, helping spur a recovery in the world’s largest economy.

A key procedure vote on the $780 billion economic-stimulus package is scheduled today, with a final vote to take place tomorrow, according to Senate Majority Leader Harry Reid. Treasury Secretary Timothy Geithner will release the Obama administration’s bank-rescue plan tomorrow, the Treasury said in an e-mailed statement.

‘Better’ Mood

“Investors’ mood has changed for the better with hopes for a positive outcome from the packages,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-biggest lender. “The yen is being sold.”

Benchmark interest rates are 3.25 percent in Australia and 3.50 percent in New Zealand, compared with 0.1 percent in Japan, encouraging investors to seek higher returns elsewhere.

Daiwa SB Investments Ltd. is urging clients to put their money into Brazil, Mexico and Turkey after the yen’s 55 percent gain against their currencies last year made emerging markets a bargain. A year ago, it wasn’t recommending any developing nation funds.

“A lot of assets have gotten extremely cheap and Japanese investors are looking to park their money somewhere,” said Kenichiro Ikezawa, who oversees about $3 billion as a fund manager at the second-largest brokerage in Tokyo. “Emerging markets including Brazil, Mexico and Turkey look attractive. We would like to invest more in such countries.”

The pound fell for the first time in a week against the dollar after the Confederation of British Industry also said Prime Minister Gordon Brown’s government must act quickly to revive lending as businesses battle the worsening credit squeeze.

‘Downside Risk’

The CBI “report suggests ongoing worries over the U.K.’s credit markets, which may also adversely affect the economy,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “There’s a downside risk for the pound.”

A number of British companies have cut jobs and pared investments while they wait for government plans to take effect, the CBI said. Brown said last month the government will guarantee billions of pounds of bank lending to counter the lending slump that’s kept the U.K. mired in a recession.

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