Yen Gains as Stock Declines, Bank Losses Spur Demand for Safety

By Anchalee Worrachate

Aug. 7 (Bloomberg) -- The yen rose against the dollar and the euro after stocks declined and Royal Bank of Scotland Group Plc posted a first-half loss, stoking demand for the Japanese currency as a refuge.

The yen gained against all 16 of the most-active currencies monitored by Bloomberg as the MSCI World Index of shares fell 0.4 percent, dropping for the third straight day. The pound slid as RBS, the U.K.’s biggest government-owned bank, reported a 1.04 billion-pound ($1.74 billion) loss. Insurer Allianz SE said second-quarter profit fell.

“Risk perception remains the driving factor in near-term moves in the yen crosses,” said Michael Klawitter, a currency strategist at Commerzbank AG in Frankfurt.

The yen traded at 95.26 against the dollar as of 6:32 a.m. in New York, from 95.46 yen yesterday. It strengthened to 159.42 per pound, from 160.22. Against the euro, the Japanese currency appreciated to 136.78 yen, from 136.94.

The Dollar Index was at 78.011, from 78.065 yesterday. The gauge, which the ICE uses to track the U.S. currency against the euro, yen, pound, Canadian dollar, Swiss franc and the Swedish krona, declined to 77.428 on Aug. 5, the lowest level since Sept. 29.

About 70 percent of RBS’s losses came from its so-called non-core division, which includes assets it plans to sell or discontinue. The bulk of the division is comprised of the bank’s global banking and markets businesses, which include propriety trading and higher risk assets.

Allianz, Europe’s biggest insurer by market value, said net income fell 16 percent to 1.87 billion euros as property and casualty earnings were crimped by the recession.

Non-Farm Payrolls

The dollar strengthened against the pound and the Australian dollar before the U.S. reports employment figures today. Employers cut 325,000 jobs in July, down from 467,000 in the prior month, a Bloomberg survey showed. The unemployment rate will increase to 9.6 percent, from 9.5 percent, a separate survey showed. The Labor Department data is due at 8:30 a.m. in Washington.

The number of Americans filing claims for jobless benefits fell by 38,000 to 550,000 in the week ended Aug. 1, the Labor Department said yesterday.

“The market is cautious ahead of today’s payrolls figures,” said Lee Hardman, a currency economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Given the recent scale of gain in risk appetite, the market is heavily positioned pro-risk going into the data, making risk assets vulnerable to a negative surprise.”

German Output

The euro pared its weekly gains against the dollar and the yen as German industrial output unexpectedly declined in June after increasing the most in more than 18 years a month earlier.

Production fell 0.1 percent from May, when it jumped 4.3 percent, the biggest gain since data for a reunified Germany began in 1991, the Economy Ministry in Berlin said today. Economists predicted an increase of 0.5 percent in June, a Bloomberg survey showed.

European Central Bank President Jean-Claude Trichet yesterday kept the main refinancing rate unchanged at 1 percent and said interest rates are “appropriate,” signaling policy makers won’t change borrowing costs any time soon.

The euro rose to $1.4363, from $1.4257 on July 31. The common currency advanced 1.4 percent this week against the yen.

“Global risk appetite has improved and that’s the key driver of the market at the moment,” said Daragh Maher, deputy head of global currency strategy at Calyon in London. “The euro is being supported by that theme. But this is perhaps more of a recent dollar weakness story than that of euro strength.”

‘Recent Improvement’

The Australian dollar was poised to rise a fourth week after the Reserve Bank of Australia said it may raise rates, spurring investors to buy higher-yielding assets.

The currency traded near the highest level since September versus the U.S. dollar after a report yesterday showed the number of people employed in the South Pacific nation rose by 32,200 from June. Economists had forecast a decline.

“Following the surprising good news on the labor market, traders priced in almost half another 25 basis point-rate hike by year-end, which has provided the Aussie with significant support on the crosses,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a report today. Australia’s currency may strengthen to 86 U.S. cents over the next week or so, he said.

Reserve Bank of Australia policy makers said in their quarterly policy statement today that they may increase interest rates if the economic recovery continues.

Australia’s benchmark interest rate of 3 percent compares with 0.1 percent in Japan and as low as zero in the U.S., making the South Pacific nation’s assets attractive to investors seeking higher returns.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net