By Ron Harui and Theresa Barraclough
Aug. 5 (Bloomberg) -- The yen and the dollar rose after Lloyds Banking Group Plc posted a first-half loss and increased the size of bad-debt provisions, boosting demand for the safety of the Japanese and U.S. currencies.
The pound fell for the first time in six days against the yen after London-based Lloyds said its total impairments in the first half were “significantly” higher at 13.4 billion pounds ($22.7 billion). The yen gained for a second day against the euro as Asian shares dropped and on speculation Japanese exporters took advantage of the yen’s 1.3 percent drop versus Europe’s currency this month to bring home funds.
“Banks in Britain and in the euro-zone probably still have a lot of bad loans, so this is a big risk to long positions in the pound and the euro,” said Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets. “It’s a situation where the pound and the euro are easy to sell and the yen and the dollar to buy.” A long position is a bet an asset will rise.
Japan’s currency rose to 94.93 per dollar as of 7:38 a.m. in London from 95.23 yesterday in New York. It advanced to 136.51 per euro from 137.21. The dollar climbed to $1.4378 per euro from $1.4408. The pound dropped to $1.6912 from $1.6939, and fell to 160.84 yen from 161.31 yen.
Lloyds, RBS
The yen climbed against all of its 16 major counterparts. Lloyds reported a first-half proforma loss of 3.12 billion pounds. Royal Bank of Scotland Group Plc on Aug. 7 will report 6.4 billion pounds in provisions, up from 1.48 billion pounds a year earlier, according to analysts surveyed by Bloomberg.
RBS posted 31.9 billion pounds of writedowns and credit market losses from mid-2007 through March 31 and Lloyds reported 33 billion pounds, data compiled by Bloomberg show. Lloyds had 2.5 billion pounds of loan provisions in the first half of 2008.
The MSCI Asia Pacific Index of shares declined 0.8 percent in its second day of losses. Standard & Poor 500 Index futures dropped 0.4 percent.
“Players are looking at equity markets for direction so when stocks fall, the yen rises,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “There’s a strong inverse relationship between the two. Some of this yen buying could also be from exporters.”
The euro-yen had a correlation of 0.9 with the MSCI Asia- Pacific excluding Japan Index in the past year, according to data compiled by Bloomberg. A value of 1 would mean the two move in lockstep.
U.S. Jobs Report
The Dollar Index traded near a 10-month low before payroll data by ADP Employer Services, the first of several U.S. jobs reports scheduled for the next three days.
U.S. companies cut an estimated 350,000 workers from payrolls in July after a reduction of 473,000 in June, according to a Bloomberg survey before the ADP report today. Data on U.S. initial jobless claims for last week will be announced on Aug. 6, and the Labor Department’s July jobs report is due Aug. 7.
“If this week’s events don’t dent expectations for a global economic recovery and risk appetite is sustained then the U.S. dollar will likely remain under pressure,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a note today.
The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners, was at 77.711 from 77.765 yesterday. It reached 77.451 on Aug. 3, the least since Sept. 29.
Australian Dollar
The Australian dollar may fall against the yen this month, snapping its longest stretch of monthly gains since 2004, as Japanese trusts expect to raise less cash to buy foreign securities, RBC Capital Markets said.
Japanese mutual funds that aim to attract cash from investors to buy foreign securities, also known as Toshin, are likely to raise 50 billion yen ($525 million) in August, down from 200 billion yen on average between March and July, Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney, wrote in a note to clients today. Toshin issuance in February was 47 billion yen, she said.
“The rally in the Australian dollar versus the yen from its March lows coincided with a resurgence in Toshin issuance,” Trinh wrote. “Based on the pitiful issuance we expect for August, it suggests the Australian dollar could pull back sharply from current levels” toward 73 yen, she wrote.
Australia’s dollar weakened 0.5 percent to 79.98 yen. The so-called Aussie has strengthened 30 percent against the yen since March 1.
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
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