Yen Falls to 2-Week Low Versus Euro on China Manufacturing Gain

By Ron Harui and Yoshiaki Nohara

July 1 (Bloomberg) -- The yen declined to a two-week low against the euro after a report showed China’s manufacturing expanded for a fourth month, increasing demand for higher- yielding assets.

The yen also fell versus all of the 16 most-active currencies after an Australian report showed retail sales rose for a third month, adding to signs the global recession is easing. South Korea’s won gained the most against the yen of the major currencies after a government report showed exports fell at the slowest pace in eight months. The dollar rose for a second day against the pound before a U.S. report that economists say will show the contraction in manufacturing eased.

“China’s PMI seems to be having a negative impact on the yen,” said Akira Hoshino, chief manager of the foreign-exchange trading department in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest lender by market value. “Risk-taking appetite appears to be returning a bit. The yen is being sold.”

The yen declined to 136.00 per euro as of 7:54 a.m. in London from 135.21 in New York yesterday. It earlier dropped to 136.01, the lowest level since June 15. The yen weakened to 96.87 per dollar from 96.36. The currency has lost 6.9 percent against the euro and 6.4 percent versus the dollar this year.

The dollar was little changed at $1.4040 per euro from $1.4033 and rose to $1.6414 per pound from $1.6458. The won strengthened 0.5 percent to 1,267.65 against the U.S. currency, and gained 1 percent to 13.087 per yen.

China Manufacturing

The yen fell after China’s Federation of Logistics and Purchasing said its Purchasing Managers’ Index rose to 53.2 in June from 53.1 in May. A reading above 50 indicates an expansion. Asia’s second-biggest economy may keep improving, enabling the nation to meet its 8 percent growth target this year, central bank Governor Zhou Xiaochuan said this week.

Australia’s retail sales increased by twice as much as economists estimated, the statistics bureau said today in Sydney. Sales gained 1 percent in May from April, when they climbed 0.3 percent, the bureau said.

The benchmark interest rate is 0.1 percent in Japan, compared with 1 percent in the 16-nation euro region, 3 percent in Australia and 2.5 percent in New Zealand.

The Korean won added to its best quarterly gain in more than four years on optimism the worst of the nation’s economic slump is ending.

Overseas shipments may return to growth from October, helped by a recovery in global demand, Lee Dong Geun, deputy minister for trade and investment policy at the Ministry of Knowledge Economy, said on June 29. Exports fell 11.3 percent in June from a year earlier, easing from May’s 28.5 percent drop, the government said.

‘Definitely Bullish’

“We are definitely bullish on the won,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. “The external balance has improved a lot, and it seems that the economy has probably bottomed out in the first quarter.”

The yen was little changed earlier after the Bank of Japan’s quarterly Tankan survey showed sentiment among the largest manufacturers rose less than economists expected.

The index of sentiment among large makers of electronics, cars and other products climbed to minus 48 in June from minus 58 in March, the central bank said in Tokyo. Economists surveyed by Bloomberg News predicted minus 43. A negative number means pessimists still outnumber optimists.

‘Worse Than Expected’

“Japan’s economic situation is worse than expected,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo. “Investors may try to err on the side of being cautious. That will lead to stock declines and prompt demand for the yen as a safe haven.”

The dollar gained for a third day against the yen on speculation a report will show manufacturing in the U.S. shrank in June at the slowest pace in 10 months.

The Institute for Supply Management’s factory index advanced to 44.6, the highest level since August, according to a Bloomberg News survey of economists before the Tempe, Arizona- based group releases the data today. Readings lower than 50 signal contraction.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, was little changed at 80.183.

The euro strengthened against the yen on speculation the European Central Bank will keep interest rates unchanged at a meeting tomorrow to aid the recovery.

Economic confidence in the euro region rose in June more than economists forecast, the European Commission reported this week. Consumer sentiment climbed to minus 25 in June from minus 28 in May. ECB member Axel Weber, who heads the Bundesbank, said last week the central bank has used up its scope to cut rates.

“The euro-zone economy is recovering at a faster pace,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “For the next several months, the ECB is unlikely to cut rates further. This would be positive for the euro.”

-- With assistance from Judy Chen in Shanghai, Victoria Batchelor in Sydney and Courtney Schlisserman in Washington. Editors: Nicholas Reynolds, Brian Fowler

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.