Yen Declines as Signs of U.S. Recovery Damp Demand for Safety

By Yasuhiko Seki and Ron Harui

May 27 (Bloomberg) -- The yen fell against higher-yielding currencies as a rebound in U.S. consumer confidence drove Asian stocks higher, damping demand for safer assets.

The yen dropped against 15 of the 16 most-active currencies before a U.S. report today that economists said will show sales of existing homes rose last month. New Zealand’s dollar fell from near a seven-month high after Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, cut its forecast for milk prices. China’s yuan fell to a six-week low before U.S. Treasury Secretary Timothy Geithner visits Beijing next week.

“Hopes the U.S. is on the road to recovery and strong global equities are reinvigorating risk appetite,” said Danica Hampton, a foreign-exchange strategist at Bank of New Zealand Ltd. in Wellington. “This is reducing ‘safe-haven’ demand for the dollar and the yen.”

The yen fell 0.8 percent to 13.1959 won as of 1:04 p.m. in Tokyo from yesterday in New York, and dropped 0.8 percent to 2.932 per Taiwan dollar. The yen declined to 133.29 per euro from 132.90, after earlier dropping to 133.52, the lowest level since May 12. It weakened to 95.41 per dollar from 95.03. The euro traded at $1.3977 from $1.3984.

The MSCI Asia Pacific Index of regional shares gained 1.8 percent and the MSCI World Index climbed 0.2 percent.

New Zealand Dollar

New Zealand’s dollar fell for the first time in eight days after Auckland-based Fonterra said it may pay its suppliers 12 percent less next season due to weak dairy prices and recent gains in the local currency. Farmers will probably receive NZ$4.55 ($2.83) for each kilogram of milk solids supplied in the year to May 31, 2010, the company said.

“With the negative news from Fonterra in New Zealand, there may be an incentive for a bit of profit-taking,” Bank of New Zealand’s Hampton said.

Demand for the yen weakened after the U.S. Conference Board said yesterday its index of U.S. consumer sentiment surged in May to 54.9, the biggest gain since April 2003. An index of manufacturing in the central Atlantic region climbed to 4 this month, the Richmond Federal Reserve Bank reported.

Sales of existing houses, which account for more than 90 percent of the U.S. market, rose 2 percent last month to a 4.66 million annual rate from a 4.57 million pace in April, economists forecast before the National Association of Realtors’ report today. New-home sales increased 1.1 percent to a 360,000 annual rate, the most this year, a separate Bloomberg survey showed before a Commerce Department report tomorrow.

‘Euphoric Views’

“We are watching incoming housing data, especially if they will support renewed euphoric views about the economy following the surprisingly strong consumer confidence data,” said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan’s second- largest lender. “The spread of euphoria means safe-haven currencies such as the yen and the dollar will weaken against emerging currencies.”

Japan’s export slump moderated in April, helping the country post an unexpected trade surplus. Shipments abroad fell 39.1 percent from a year earlier, after dropping 45.5 percent in March and a record 49.4 percent in February, the Finance Ministry said today in Tokyo.

The yuan slid to the weakest level since April 14 after the People’s Bank of China fixed the daily reference rate for yuan trading at a five-week low. Vice Premier Wang Qishan said on May 25 that China will try its best to maintain the market share of its exports, according to a statement on the State Council’s Web site yesterday.

Protect Exporters

“China lowered the reference rate before Geithner’s visit to make him aware of the need to weaken the yuan to protect exporters,” said Yang Shengkun, a currency analyst in Beijing at China Citic Bank Co., a unit of the nation’s biggest state investment company. “But it doesn’t mean the government will give up the current policy of keeping the yuan stable.”

The yuan declined 0.04 percent to 6.8330 per dollar, according to the China Foreign Exchange Trade System. It touched 6.8372 today, the lowest since April 14.

Demand for the euro may weaken before a German report tomorrow that economists say will show the jobless rate climbed to the highest level in more than a year in May, suggesting the region may be slower than the U.S. in emerging from recession.

Germany’s adjusted jobless rate rose to 8.4 percent in May, the highest since November 2007, from 8.3 percent in April, according to a Bloomberg survey of economists.

“Europe’s economy may take a while to recover,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank. “The markets may perceive this as a negative factor and sell the euro.”

ECB Executive Board member Lorenzo Bini Smaghi will speak at 10 a.m. today in Rome today. Bini Smaghi told Italian television on May 8 that the ECB’s current record-low interest rate of 1 percent “is not necessarily the minimum.”

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