Yen, Dollar Advance as Stock Losses Increase Demand for Safety

By Yasuhiko Seki and Theresa Barraclough

April 8 (Bloomberg) -- The yen and the dollar rose against the euro as Asian stocks extended a worldwide decline, boosting demand for the two currencies as a refuge from the global financial turmoil.

The yen gained against 13 of the 16 most-active currencies as the MSCI Asia Pacific index of regional shares dropped for a second day on renewed concern the recession will depress corporate earnings. The Australian dollar fell for a fourth day versus the greenback and New Zealand’s currency weakened as the share declines damped demand for higher-yielding currencies.

“We need to assess reality once again during the earnings season to see if the recent optimism can be justified,” said Shigeru Nakane, a foreign-exchange dealer in Tokyo at Resona Bank Ltd., a unit of Japan’s fourth-largest banking group. “Caution ahead of the reporting may trigger selling” of stocks and boost demand for the dollar and the yen, he said.

The dollar rose to $1.3190 versus the euro as of 11:13 a.m. in Tokyo from $1.3272 in New York yesterday after touching $1.3183, the strongest level since April 1. The yen climbed to 132.06 per euro from 133.29. Japan’s currency traded at 100.12 per dollar from 100.42.

Australia’s dollar dropped to 70.67 U.S. cents from 71.09 cents yesterday and New Zealand’s dollar fell to 57.34 U.S. cents from 57.58 yesterday.

The MSCI Asia Pacific index declined 1.7 percent after the Standard & Poor’s 500 Index slid 2.4 percent yesterday. Profits at S&P 500 companies may have fallen 37 percent in the first quarter, according to estimates from more than 1,700 securities analysts compiled by Bloomberg. Alcoa Inc., the first Dow Jones Industrial Average company to post results for the March quarter, reported a wider-than-estimated loss.

Risk Aversion

“The risk associated with results of U.S. companies is causing a risk aversion bid into the yen,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. The yen may strengthen to below 100 per the dollar today, he said.

The Dollar Index, used by the ICE to track the greenback against the currencies of six major U.S. trading partners, climbed for a third day, climbing to 85.486 from 85.288.

“With the basis for the recent euphoria about the global economy and stock markets still looking to be fragile, I want to take profits on recent gains before a major economic event in the U.S. such as corporate profit announcement,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.

‘Bad Shape’

Gains in the yen may be tempered before a government report tomorrow that economists say will show machinery orders declined for a fifth month.

“Japan’s economy is in a bad shape,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “There is no reason to buy the yen right now.”

Machinery orders, an indicator of capital investment in the next three to six months, dropped 6.9 percent in February from the previous month, according to a Bloomberg News survey.

Japan’s current-account surplus narrowed in February as the recession eroded demand for the nation’s exports. The surplus shrank 55.6 percent to 1.117 trillion yen ($11 billion) from a year earlier, the Ministry of Finance said today. Japan had a 172.8 billion yen deficit in January, its first in 13 years.

The world’s second-largest economy will keep contracting through the third quarter of this year, a separate Bloomberg survey showed.

Bank of Japan Governor Masaaki Shirakawa said yesterday economic conditions have worsened since the central bank released its growth forecasts in January. The economy will contract 2 percent in the fiscal year started April 1, the central bank said in January.

German Exports

The euro fell for a third day against the dollar before a report that may show German exports dropped for a fifth straight month in February, pushing Europe’s largest economy deeper into a recession.

Sales abroad, adjusted for working days and seasonal changes, fell 4.4 percent from January, when they slipped 4.4 percent, according to a Bloomberg survey before the Federal Statistics Office releases the report today.

The European Union’s statistics office said yesterday gross domestic product in the region declined 1.6 percent in the fourth quarter, the most in at least 13 years. The March 5 estimate was for a 1.5 percent contraction.

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