Yen Drops After Japanese Increase Purchases of Overseas Bonds

By Theresa Barraclough and Yasuhiko Seki

June 4 (Bloomberg) -- The yen weakened for a second day versus the dollar and declined against the euro after a report showed Japanese investors increased purchases of overseas assets.

The yen fell versus 13 of the 16 most-active currencies after the Ministry of Finance said Japanese bought 982 billion yen ($10.2 billion) more overseas bonds than they sold last week, the largest net purchase in a month. Asian currencies declined, led by the Taiwan dollar and Indonesian rupiah, as regional stocks dropped after U.S. reports showed companies cut more workers and the spending by Japanese companies slumped.

“Japanese investors are beginning to get an appetite for foreign investment, which is weighing on the yen,” said David Forrester, a strategist in Singapore at Barclays Capital, a unit of the U.K.’s third-biggest bank. “They will continue to increase their exporting of capital and we expect the yen to be one of the worst performers in the next six months.”

The yen declined to 136.24 per euro as of 12:56 p.m. in Tokyo, from 135.93 in New York yesterday when it gained 0.8 percent. The yen dropped to 96.09 per dollar from 95.99. The U.S. currency traded at $1.4176 per euro from $1.4162.

Japan’s currency may fall to as low as 98 against the dollar over the next year, Forrester said.

The Taiwan dollar dropped 0.6 percent to NT$32.686 against the U.S. currency, the Philippine peso slipped 0.4 percent to 47.38 and Indonesia’s rupiah lost 0.4 percent to 10,150.

Taiwan Dollar

Taiwan’s currency dropped the most in eight weeks as concern the global economic recovery is faltering prompted investors to cut their holdings of emerging-market assets.

The MSCI Asia Pacific Index of regional shares slumped 1.7 percent, ending four days of gains, and the Nikkei 225 Stock Average fell 0.3 percent.

ADP Employer Services yesterday reported U.S. companies cut an additional 532,000 jobs last month as the labor market showed little signs of improving. Japanese capital spending excluding software fell 25.4 percent in the three months ended March 31 from a year earlier, compared with an 18.1 percent decline during the previous quarter, the Ministry of Finance said today in Tokyo.

“U.S. data was not particularly favorable” and that is hurting Asian currencies, said Craig Chan, a strategist at Nomura Singapore Ltd., a unit of Japan’s largest brokerage.

ECB Meeting

The euro was little changed against the dollar on speculation European Central Bank policy makers meeting today will take further steps to keep down borrowing costs in the 16- nation region as optimism over the global recovery wanes.

“The financial market has become overly optimistic about the global economy,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. There should be some “profit-taking ahead of the central bank meeting.”

ECB policy makers will hold the main refinancing rate at 1 percent at the meeting, according to the median forecast of economists surveyed by Bloomberg News.

The ECB said last month it would buy 60 billion euros ($85 billion) of covered bonds, debt issued by banks and backed by mortgages or public-sector loans.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net.