Yen Rises as Signs Recession Is Easing Spur Foreign Investment

By Ron Harui

Aug. 10 (Bloomberg) -- The yen rose for the first time in three days against the euro after government reports showed Japan’s recession may be abating, encouraging foreign investors to buy assets in the world’s second-biggest economy.

The Japanese currency ended two days of losses versus the dollar after machine orders rose, exports improved and as speculation intensified that exporters brought back overseas earnings. The pound traded near a five-week high against the euro before a U.K. report tomorrow that economists said will show the housing market improved for a fifth month.

“Japan’s economic data were good,” said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “Foreigners have been net buyers of local stocks, possibly reflecting more interest in Japanese assets. This is a yen-buying factor.”

The yen advanced to 138.01 per euro as of 7:45 a.m. in London from 138.41 in New York on Aug. 7, when it declined to 138.72, the lowest level since June 5. The Japanese currency climbed to 97.22 per dollar from 97.57, after falling to 97.79 on Aug. 7, the weakest level since June 16.

The dollar traded at $1.4196 per euro from $1.4183 in New York on Aug. 7, when it rose to $1.4155, the highest level since July 31. Europe’s single currency traded at 85.12 pence from 84.98 pence. It slipped to 84.56 pence on Aug. 6, the weakest level since June 30.

Exchange-rate movements may be exaggerated by Japan’s Obon holidays this week, when Japanese often take week-long vacations to honor ancestors, Sakai said.

Japan’s Economic Reports

Japanese machinery orders climbed 9.7 percent in June, the first time in four months, the Cabinet Office said today. The increase was more than the 2.6 percent expected by economists surveyed by Bloomberg news. The nation’s current-account surplus more than doubled from a year earlier to 1.15 trillion yen ($11.8 billion) in June, the Ministry of Finance said.

Foreign investors bought 424.7 billion yen more in Japanese shares than they sold during the week ended Aug. 1, based on figures released by the Finance Ministry on Aug. 6.

The yen also gained on speculation Japanese firms bought the currency to repatriate income after it fell to a seven-week low versus the dollar and a two-month low against the euro.

“There’s talk that domestic firms are buying the yen,” Sakai said. “The currency fell to around 97.80 on Aug. 7, which is an attractive yen-buying level for exporters.”

Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.

British Pound

The pound may strengthen for a second day versus the euro on signs the worst of the U.K.’s recession may be over.

U.K. manufacturing jumped in June by the most in 1 1/2 years, the Office for National Statistics reported on Aug. 5. The purchasing managers’ index for U.K. services rose to 53.2 in July, the highest since February, according to Markit Economics.

“The British economy is heading for a recovery, given that recent data such as manufacturing have been very good,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “It’s positive for sterling.”

Across Britain, the number of respondents saying house prices dropped exceeded those reporting gains by 10 percentage points in July, compared with 18.1 percent in June, according to a Bloomberg News survey of economists. The Royal Institution of Chartered Surveyors releases the survey tomorrow in London.

U.S. Economy

The U.S. economy may be on the cusp of a recovery and the impact of the nation’s stimulus plan should increase this quarter, said Laura Tyson, an adviser to President Barack Obama, in an interview from Kuala Lumpur yesterday. Nobel Prize-winning economist Paul Krugman said the deepest slump since the Great Depression may be ending.

“Economies around the world are improving, with the U.S. leading the way,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The dollar is likely to be bought and the yen will probably be sold.”

U.S. employers eliminated 247,000 jobs in July after a revised decrease of 443,000 in the previous month, the Labor Department said on Aug. 7. The median forecast of 82 economists surveyed by Bloomberg News was for a reduction of 325,000. The unemployment rate decreased to 9.4 percent, whereas economists predicted an increase.

Federal Reserve

Any gains in the dollar may mark a return to the view that good U.S. economic news should benefit the currency as traders speculated that the Federal Reserve will boost borrowing costs sooner rather than later.

Futures on the Chicago Board of Trade indicated a 60 percent chance the Fed will increase the target lending rate from its range of zero to 0.25 percent by its January meeting, compared with 52 percent odds a month ago.

The Dollar Index, which the ICE uses to track the dollar against the currencies of six major trading partners including the euro, yen and pound, advanced 0.8 percent last week to 78.975. The gauge was at 78.860 today.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.