Yen Rises as CIT Says Aid Unlikely, Paring High-Yield Demand

By Ye Xie and Bo Nielsen

July 16 (Bloomberg) -- The yen advanced against the euro for the first time in four days as the commercial lender CIT Group Inc. said it probably won’t receive a federal bailout, reducing demand for higher-yielding assets.

New Zealand’s dollar slid the most in two weeks versus the greenback after Fitch Ratings cut the outlook for the nation’s long-term credit rating. The yen pared its gains as profit at JPMorgan Chase & Co. rose for the first time since 2007 and a report showed U.S. first-time unemployment claims fell last week to the lowest level since January.

“The yen is still the main bellwether of risk appetite,” said Paul Robson, a London-based currency strategist at Royal Bank of Scotland Group Plc. “CIT reminded people that the global financial system still has issues, but risk appetite won’t be off for long.”

Japan’s currency appreciated 0.3 percent to 132.62 per euro at 8:54 a.m. in New York, from 132.95 yesterday, when it declined to 133.40, the weakest level since July 7. The dollar slid 0.2 percent to $1.4139 per euro from $1.4107. The yen gained 0.5 percent to 93.75 per dollar from 94.23.

New Zealand’s dollar declined 0.3 percent to 64.71 U.S. cents after falling 1.5 percent, the biggest intraday drop since July 2, and slipped 0.7 percent to 60.73 yen. Australia’s currency was little changed at 80.38 cents.

Yen Versus Euro

The yen rose from near a one-week low against the euro after New York-based CIT said in a statement yesterday “there is no appreciable likelihood of additional government support being provided over the near term.” The company faces bankruptcy if no federal aid emerges, Standard & Poor’s said this week.

“Growth bears who don’t believe in the recovery story were keen to jump onto the negative news and buy the yen and the dollar,” said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the world’s largest currency trader. “But CIT is likely to be an exception, and we’ll see more positive surprises coming from financial institutions going forward.”

More than 1.5 million U.S. properties received a default or auction notice or were seized by banks in the six months through June, RealtyTrac Inc., an Irvine, California-based seller of default data, said today in a statement. That’s a 15 percent increase from the year earlier.

The yen typically rises during times of financial turmoil because its trade surplus means the nation doesn’t have to rely on overseas lenders.

Weaker Kiwi

New Zealand’s currency, known as the kiwi, weakened after Fitch said in a statement that the South Pacific nation’s deficit is large and a “stronger fiscal adjustment than currently planned” may be needed.

“The downward revision in New Zealand’s rating outlook may spark investor worries over whether the nation can emerge from recession,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “That could cause selling of commodity currencies, particularly the kiwi, and buying of haven currencies such as the yen and the dollar.”

Fitch affirmed New Zealand’s foreign-currency rating at AA+, its second-highest level, and affirmed the local-currency rating at AAA. New Zealand’s current-account deficit was 8.5 percent of gross domestic product in the year ended March 31.

The yen pared its gain versus the euro while the dollar erased its advance on JPMorgan’s earnings and the drop in U.S. initial jobless claims.

JPMorgan’s Profit

Quarterly profit at the second-largest U.S. bank surpassed analysts’ most optimistic estimates as investment-banking fees reached a record.

The number of Americans filing claims for unemployment benefits fell to 522,000 in the week ended July 11 from a revised 569,000, the Labor Department reported today. The median forecast of 41 economists surveyed by Bloomberg News was for a decrease to 553,000 from a previously reported 565,000.

The Dollar Index, which the ICE uses to track the greenback against the currencies of six major U.S. trading partners including the euro and yen, was little changed at 79.261 after earlier rising as much as 0.4 percent.

The yen also pared gains after China said its economy rebounded from the weakest growth in a decade, encouraging investors to buy emerging-market assets.

China’s gross domestic product expanded 7.9 percent in the second quarter from a year earlier after a 6.1 percent gain in the previous three months, the statistics bureau said. Industrial production rose 10.7 percent in June from a year earlier after an 8.9 percent gain in May, the bureau also said.

“The recent slew of economic data and incoming indicators seem to suggest that the global situation is not as bad as the market had feared,” said Kengo Suzuki, manager of the foreign bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group. “This will put downward pressure” on the yen and dollar.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net;