Yen Declines Versus Higher-Yielding Currencies as Stocks Gain

By Ron Harui

May 19 (Bloomberg) -- The yen weakened against higher- yielding currencies as an advance in Asian stocks and optimism the global recession is easing damped demand for safer assets.

The yen fell against all of the 16 most-traded currencies before a U.S. government report that may show housing starts climbed from near a record low, boosting the appetite for riskier investments. South Korea’s won approached a seven-month high versus the dollar as the gain in shares spurred demand for emerging-market assets. The dollar fell to the lowest level this year against the British pound as demand for the relative safety of the U.S. currency eased.

“Equities are rising and the worldwide recession may have bottomed out,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This augurs well for risk-taking appetite and is negative for the yen and the dollar.”

The yen fell to 58.08 against the New Zealand dollar as of 7:55 a.m. in London from 57.28 in New York yesterday. It weakened to 12.9242 Korean won from 13.0768. Japan’s currency declined to 131.34 per euro from 130.61, and dropped to 96.58 per dollar from 96.30.

The euro rose to $1.3593 from $1.3562 yesterday. The pound climbed to $1.5440 from $1.5348, after earlier rising to $1.5443, the highest since Dec. 18.

Asian Currencies

Asian currencies advanced against the yen and the dollar, led by the won and the Indonesian rupiah, as optimism the worst of the global recession is over encouraged investors to buy securities in the region.

The Nikkei 225 Stock Average surged 2.8 percent and the MSCI Asia-Pacific Index of regional shares climbed 2.3 percent after the Standard & Poor’s 500 Index rose 3 percent yesterday. Sony Corp., which gets a quarter of its sales from the U.S., jumped 3.3 percent.

The VIX Index, a measure of market volatility known as Wall Street’s “fear gauge,” fell 8.7 percent to 30.24 yesterday, indicating traders became more optimistic about stock gains.

“The healing in market stress continues,” Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong, wrote in a note sent to clients today. “Risk currencies moved back into favor.”

The won extended gains in the past month to 6.6 percent against the dollar, the best performance among Asia’s 10 most- traded currencies, as overseas investors bought more local shares than they sold for a third day. The won rose 0.8 percent to 1,249.25, according to data compiled by Bloomberg.

‘Early Boost’

“The won is getting an early boost from an overnight rally in U.S. shares and as foreign investors continue buying local stocks,” said Jo Hyun Suk, a currency dealer at Korea Exchange Bank in Seoul.

The Indonesian rupiah advanced 1.1 percent to 10,270 per dollar and the Taiwan dollar gained 0.3 percent to NT$32.885.

The Australian dollar climbed to a one-week high against the U.S. currency after central bank Governor Glenn Stevens said the economy is in good shape to benefit from a global recovery as interest-rate cuts drive domestic demand and a pickup in China stokes exports.

Australia “should be in a relatively good position and well placed to take part in a renewed international expansion,” Stevens said in Sydney.

The Australian dollar strengthened to 76.87 U.S. cents from 76.58 cents yesterday, after earlier reaching 77.02 cents, the strongest level since May 13.

U.S. housing starts increased in April to an annual rate of 520,000 from 510,000 the previous month, according to the median forecast of economists surveyed by Bloomberg. The Commerce Department will release the report at 8:30 a.m. in Washington.

German ZEW

Demand for the euro was bolstered on speculation a German report today will show investor confidence increased.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations rose to 20 from 13 in April, according to the median forecast in a separate Bloomberg survey. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim.

“There’s a possibility that Germany’s ZEW survey may surprise on the upside,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader. “This may lead to buying of the euro against the yen amid renewed risk sentiment.”

Losses in the yen may be tempered on speculation overseas investors will buy Japanese government bonds after Moody’s Investors Service yesterday brought Japan’s local and foreign- currency debt ratings to the same level, Aa2.

Moody’s cut the foreign-currency debt rating from Aaa and raised the local-currency assessment from Aa3, saying it can no longer assume that Japan would be more likely to repay debt borrowed in currencies other than the yen. The outlook remains stable, Moody’s said in a statement.

“This should be net positive for the yen as local-currency JGBs are considered the benchmark in global debt markets,” Ashley Davies, a currency strategist in Singapore at UBS AG, wrote in a research note today.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net.