Yen Rises as Asian Stock Losses Spur Demand for Safer Assets

By Theresa Barraclough and Ron Harui

Aug. 12 (Bloomberg) -- The yen rose against all 16 major currencies as Asian stocks extended a global slide in equities, spurring demand for the relative safety of Japan’s currency.

The yen also gained for a third day versus the euro after CIT Group Inc. said it was delaying a quarterly report, reviving concern the commercial lender needs more time to raise funds. The dollar fell for a third day against the yen on speculation the Federal Reserve will today affirm its commitment to keeping interest rates low, reducing the appeal of holding U.S. bonds.

“The market is feeling that the recovery in financial institutions may be limited,” said Satoru Ogasawara, a foreign- exchange analyst and economist in Tokyo at Credit Suisse Group AG. “It’s reasonable to expect market participants being risk averse and turning to the yen.”

The yen advanced to 135.16 per euro as of 12:54 p.m. in Tokyo from 135.82 in New York yesterday, after earlier rising to 135.03, the highest level since Aug. 3. Japan’s currency climbed to 95.56 per dollar from 95.99. The dollar traded at $1.4144 per euro from $1.4149.

Most Asian currencies weakened against the dollar and yen as equities in the region dropped, prompting investors to sell emerging-market securities.

“Falling shares would imply risk aversion, sparking buying of the yen,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The yen may move in line with stocks.”

Asian Currencies Weaken

South Korea’s won slid 1 percent to 1,251.35 per dollar and Indonesia’s rupiah declined 0.5 percent to 9,965. The MSCI Asia- Pacific Index of regional shares declined 1.2 percent. The euro- yen had a correlation of 0.88 with the MSCI Asia-Pacific Index in the past year, according to data compiled by Bloomberg. A value of 1 would mean the two moved in lockstep.

The yen strengthened to a one-week high against the euro after CIT said in a filing yesterday it expects to file the so- called 10Q statement with the Securities and Exchange Commission by Aug. 17. It repeated a statement from July 23 that bondholders don’t plan to push for a bankruptcy filing.

The New York-based lender, which turned to bondholders for a $3 billion rescue financing after failing to get a second government bailout, said last month it didn’t have the money to repay securities maturing Aug. 17.

The Dollar Index dropped for a second day. Fed policy makers will announce more details about their asset-purchase program at the end of their two-day meeting in Washington.

‘Still Concern’

“The Fed will be positive on the economy but they most likely won’t change their quantitative easing program,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “There’s still concern about the outlook and whether they’ve done enough and if lending is picking up. If you had to be short or long, I would be short on the dollar.” A short position is a bet an asset will decline.

The greenback is likely to depreciate to 92 yen by year-end, Westpac’s Callow said. That compares with a forecast of 98 yen in a Bloomberg News survey of economists and analysts with a heavier weighting on more recent forecasts.

The Fed has kept its target rate for overnight loans between banks in a range from zero to 0.25 percent since December. The Federal Open Market Committee will keep rates unchanged today, according to all economists surveyed by Bloomberg. The central bank has bought $252.761 billion of U.S. Treasuries since it announced a six-month plan in March to purchase $300 million of Treasuries to help keep borrowing low.

Yield Spread

“If the Fed provides no hints of when it’s planning to exit its quantitative-easing program, this could weigh on the U.S. dollar,” analysts led by John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney, wrote in a note today.

The difference in yield between 10-year Treasuries and similar-maturity German debt held at 19 basis points today, about half the 41 basis-point spread on Aug. 5. The spread between U.S. and Japanese debt was at 220 basis points today. A basis point is 0.01 percentage point.

The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners including the euro and the yen, to 79.146.

Industrial Production

The euro traded near a seven-week high against the Swiss franc before a report that economists say will show European industrial production rose 0.2 percent in June, after increasing 0.5 percent the previous month.

An index measuring investor sentiment in the euro area rose to minus 17 in August from minus 31.3 in July, the Limburg, Germany-based Sentix research institute said on Aug. 10. The gauge added to signs the economy is recovering from its worst slump since World War II.

“Evidence is mounting that economies around the world, including those in the euro-zone, are coming out of recession,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “That means the euro is still likely to be strong.”

European Central Bank President Jean-Claude Trichet said last week he sees some “clearly less negative” economic signs.

The euro traded at 1.5308 francs from 1.5307 yesterday. It rose to 1.5364 on Aug. 10, the strongest since June 25. The currency was at 85.79 British pence from 85.86 pence yesterday, when it advanced to 86.16 pence, the highest since July 29.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.