Yen Advances to Six-Week High as Swine Flu Spurs Safety Demand

By Yasuhiko Seki and Ron Harui

April 28 (Bloomberg) -- The yen advanced to a six-week high against the euro on speculation the spreading swine flu outbreak will increase the demand for safer assets.

Japan’s currency also rose to a four-week high versus the dollar as the World Health Organization raised its pandemic alert to an unprecedented level, fueling concern the virus will deepen the global recession. Mexico’s peso traded near a one- month low on concern the swine flu outbreak will curb tourism and consumer spending. The euro was near a one-week low against the pound on speculation the European Central Bank is moving closer to a policy of so-called quantitative easing.

“The spread of swine flu has sparked concern over global risk and strengthened risk aversion,” said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest publicly traded bank. “Thus demand for the yen as a refuge will increase.”

The yen advanced to 125.71 per euro as of 9:54 a.m. in Tokyo, from 126.14 in New York yesterday. It earlier rose to 125.32, the strongest since March 12. The yen climbed to 96.54 per dollar from 96.77, after reaching 96.28, the highest level since March 30. The dollar traded at $1.3022 versus the euro from $1.3036. The euro traded at 89.14 pence from 88.94 pence yesterday.

Mexico’s currency was at 14.0441 versus the dollar from 14.0505 yesterday, after falling to 14.1007, the weakest level since April 1.

The peso weakened yesterday against all of the other major currencies tracked by Bloomberg as the government closed schools until May 6 and shut public events to contain the swine flu. The currency dropped 5.1 percent yesterday against the greenback, the biggest drop since Oct. 15.

Emergency Meeting

Swine flu cases in the U.S. doubled to 40 and Mexico’s toll of deaths related to the virus reached as many as 149 as concern among global health officials about other outbreaks spurred an emergency meeting of the WHO. U.S. officials yesterday recommended nonessential travel to Mexico be avoided, and the European Union has told travelers to avoid outbreak areas. Australia, Japan, Singapore and South Korea are all screening air passengers.

The euro fell for a second day against the dollar on speculation ECB policy makers this week will signal the central bank may lower interest rates and pump additional money into the economy to push down borrowing costs.

The ECB stands “ready to use unconventional measures of quantitative easing” to increase the flow of credit, governing council member Ewald Nowotny said yesterday in New York. Executive board member Lorenzo Bini Smaghi will speak in Geneva today and fellow board member Juergen Stark will speak in Siegen, Germany tomorrow.

Euro Falls

“The ECB is likely to take non-traditional monetary easing measures,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “There’s a large downside risk for the euro,” which may drop to $1.2980 and 124.75 yen today, he said.

Investors in the past week increased bets the ECB will reduce its 1.25 percent target lending rate at its May 7 meeting. The implied yield on the three-month Euribor interest-rate futures contract for June delivery fell to 1.295 percent yesterday from 1.325 percent a week earlier.

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