Yen Rises on Stock Losses, Exporters’ Purchases, Election Win

By Ron Harui

Aug. 31 (Bloomberg) -- The yen rose to a five-week high against the euro as declines in Asian stocks spurred investors to sell higher-yielding assets and on speculation Japanese exporters bought the currency on the last day of the month.

Japan’s currency gained versus all 16 major counterparts after the opposition Democratic Party of Japan swept to power in elections yesterday. The yen climbed to a seven-week high versus the dollar as falling profits at Chinese companies pushed the benchmark Shanghai index down the most in 9 months, boosting demand for Japan’s currency as a refuge.

“The slide in China’s equity markets led to buying of the yen,” said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “Investors are still risk averse as they believe the stock rally is excessive as compared with corporate earnings.”

The yen climbed to 132.26 per euro as of 7:35 a.m. in London from 133.85 in New York on Aug. 28. It earlier reached 132.19, the highest level since July 22. The Japanese currency advanced to 92.75 per dollar from 93.60, after touching 92.55, the strongest level since July 13.

The euro fell to $1.4260 from $1.4303 in New York on Aug. 28. The currency bought 87.98 British pence from 87.89 pence, after advancing to 88.39 pence on Aug. 27, the highest level since June 5.

Chinese Stocks Fall

Japan’s currency was set for a monthly advance versus 10 major Asian currencies on concern investors may trim holdings of emerging-market assets. The Shanghai Composite Index fell 6.2 percent today, the most since November 2008. The Nikkei 225 Stock Average declined 0.4 percent and the MSCI Asia-Pacific Index of regional shares lost 0.6 percent.

China Southern Airlines Co., the nation’s largest carrier, said yesterday that first-half net income tumbled 97 percent. Baoshan Iron & Steel Co., China’s biggest steelmaker, said on Aug. 28 that first-half profit plunged 93 percent, while China Merchants Bank Co. on the same day posted its third consecutive quarter of declining profits.

The yen also gained after public broadcaster NHK said the DPJ captured 308 of the 480 lower-house seats, prompting speculation foreign investors will put more money into the world’s second-largest economy.

DPJ President Yukio Hatoyama and his party have pledged to boost child-care spending, cut taxes and curtail the power of bureaucrats after they ended the rule of Prime Minister Taro Aso’s Liberal Democratic Party.

‘Stashed the Cash’

“What appeals to me on the Japan call is that these are the voters who have stashed the cash under the beds,” Tom Murphy, managing partner in Sydney at Family Office Research & Management Ltd., said in a Bloomberg Television interview. “If we get just some increase in investment from the elderly within the population into growth assets of some type, we could see quite a change.”

The yen also climbed amid speculation Japanese exporters purchased the nation’s currency.

“Exporters possibly bought the yen because of month-end demand,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore.

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.

The euro is poised for its first back-to-back monthly climb versus the dollar since March 2008 before a German report tomorrow estimated to show retail sales in Europe’s largest economy rose for the first time in three months.

German Retail Sales

Sales, adjusted for inflation and seasonal swings, climbed 0.7 percent in July, after a 1.3 percent drop in June, a Bloomberg survey of economists showed before the Federal Statistics Office’s report in Wiesbaden. An index of executive and consumer sentiment in the 16-nation region increased to 80.6, the highest since October, from 76 in July, the European Commission in Brussels said on Aug. 28.

“Recent data have exceeded economists’ predictions, suggesting the euro-zone economy is on a gradual recovery path,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “The trend is for the euro to strengthen.”

Europe’s single currency may reach $1.4500 this week, Nihei said.

The European Central Bank will keep its main refinancing rate at 1 percent at its Sept. 3 meeting, according to all 58 analysts surveyed by Bloomberg.

New Zealand’s Dollar

New Zealand’s dollar fell for a second day versus its U.S. counterpart as the country’s central bank Governor Alan Bollard said in a radio interview the currency’s strength is hampering an export-led recovery.

Foreign-exchange traders are increasing bets that Bollard will abandon his pledge to keep interest rates at a record low. New Zealand’s dollar appreciated 3.1 percent this month versus the U.S. dollar on speculation the central bank may raise borrowing costs as soon as March following gains in consumer spending and house prices.

“New Zealand may surprise people as one of the first central banks to tighten,” said David Tien, a money manager at Fischer Francis Trees & Watts in New York, with $19 billion in assets. “If global activities pick up, Asia is best positioned. New Zealand rates should normalize.”

The currency known as the kiwi fell 0.4 percent at 68.17 U.S. cents.

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