Yen Falls as Gain in Stocks Adds Demand For Higher-Yield Assets

By Oliver Biggadike and Ye Xie

April 9 (Bloomberg) -- The yen weakened against most of the world’s most actively traded currencies as the five-week rally in stocks signals renewed demand for higher-yielding assets.

The dollar rose against the euro this week by the most in three months on speculation investors are shifting funds to U.S. assets. The British pound depreciated against the Australian dollar, South African rand and U.S. dollar after the Bank of England said it will keep pumping money into the economy by purchasing government bonds. Norway’s krone gained by the most this week versus Japan’s currency.

“There was panic in the market and now there’s clearly a lot of cash on the sidelines which is still not invested,” said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut. “Those who can afford it have started to do so.”

The yen declined 07 percent to 100.46 per dollar at 12:11 p.m. in New York, from 99.76 yesterday. Japan’s currency weakened 1.6 percent to 71.96 to the Australian dollar and by 0.5 percent to 15.04 versus the Norwegian krone.

The dollar gained 1 percent to $1.3147 against the euro from $1.3486 on April 3. The yen depreciated as the Standard & Poor’s 500 Index headed for its fifth weekly gain, the longest rally since October 2007. The MSCI World Index of global shares advanced 2.5 percent today.

Risk Appetite

“High-yield corporate bonds have priced in a very high default rate that is not realistic,” said Pu Yonghao, head of Asia-Pacific research at UBS, in a Bloomberg Television interview from Hong Kong. “Over the longer term equity does look attractive in terms of valuation even if in the short term we see potential volatility and potential corrections.”

Credit-default swaps on high-risk, high-yield debt sold by Asian companies and governments fell yesterday for the fifth time in six days to the lowest level in more than a month, according to data compiled by Bloomberg. The contracts decline as perceptions of default risk improve.

Predictions for swings in the yen against the dollar slid to the lowest since Lehman Brothers Holdings Inc. failed in September, as a perceived easing of the global financial crisis reduced the lure of Japan’s currency, according to Daiwa Securities Group Inc.

Volatility on one-month yen-dollar options fell to as low as 15.25 percent this week, the least since Sept. 15, when Lehman failed, data compiled by Bloomberg show.

Policy ‘Safety Net’

“Expectations that policy actions around the world will provide a safety net have reduced the risk of yen appreciation and pushed down volatility,” said Takahide Nagasaki, senior currency strategist at Daiwa Securities SMBC Co. in Tokyo.

European Central Bank council member Ewald Nowotny said cutting the benchmark rate below 1 percent is still open for debate and it would be “sensible” for the bank to buy corporate debt as it fights for an economic recovery.

“It’s my personal opinion that the benchmark rate should not go below 1 percent, but this is a point that’s open for discussion,” Nowotny, who heads Austria’s central bank, said in a telephone interview from Vienna late yesterday. The purchase of commercial paper and corporate bonds is “a sensible and efficient measure” that would take time to prepare, he said.

The Deutsche Bank trade-weighted euro index, measured against the dollar, the yen, the Swiss franc, the pound and the Swedish krona, rose to 136.65 from 136.42 yesterday.

The euro will rise to $1.40 in three months and $1.45 in six and 12 months, according to Goldman Sachs Group Inc.

The Dollar Index, which the ICE uses to track the greenback versus the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell 0.2 percent to 85.156 from 85.361.

Deeper German Recession

Gains in the euro may be tempered after a German government report today showed industrial production fell for a sixth month, adding to concern the nation’s recession is deepening.

“We would argue there’s more weakness coming in the euro,” said Robert Doll, who oversees $280 billion as chief investment officer for global equities at BlackRock Inc., speaking in a Bloomberg Television interview. “The euro zone’s been slow to recognize the problem, slow to reduce interest rates. Therefore it’s going to be much slower to recover.”

Output fell a seasonally adjusted 2.9 percent from January, when it slumped 6.1 percent, the most since data for a reunified Germany began in 1991, the Economy Ministry in Berlin said. Inflation slowed to the least in almost 10 years last month as consumer demand eased, a separate report showed today.

The dollar extended its gains against the euro after a government report showed U.S. trade deficit unexpectedly narrowed in February to the lowest level in nine years.

Imports of Asian cars, toys and electronics collapsed, narrowing the difference between goods brought in from overseas and exports by 28 percent to $26 billion.

“It’s a big deal,” said Alan Ruskin, head of international currency strategy in North America at RBS Securities Inc. in Greenwich, Connecticut. “It suggests that global rebalancing has taken another big step forward, which is very good for the dollar.”

To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net