Yen Rises a Second Day as China Output Grows Less Than Forecast

By Ron Harui and Theresa Barraclough

Aug. 11 (Bloomberg) -- The yen rose for a second day against the euro and the dollar after Chinese reports showed industrial output grew less than expected and exports fell, spurring demand for the relative safety of Japan’s currency.

The yen strengthened versus all of its 16 major counterparts after China also said producer and consumer prices both dropped. The South Korean won dropped to its weakest level this month after the central bank said “uncertainties” over the economic recovery remain.

“The data indicate China’s economy may not be growing as strongly as people are hoping,” said Takashi Kudo, director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is leading to risk aversion, with the yen being bought.”

The yen advanced to 137.18 per euro as of 8:48 a.m. in London, from 137.36 in New York yesterday, after earlier trading at 136.46, the strongest level since Aug. 5. It appreciated to 96.81 per dollar from 97.15. The euro rose to $1.4167 from $1.4140, and bought 86.10 British pence from 85.79 pence.

China’s statistics bureau said industrial production grew 10.8 percent in July, below the median estimate for a 11.5 percent gain forecast by economists surveyed by Bloomberg News. Consumer prices fell 1.8 percent and producer prices slid a record 8.2 percent. Exports dropped 23 percent from a year earlier, the customs bureau said.

Euro to ‘Struggle’

The euro rose from near a one-week low versus the dollar even after a German report showed wholesale prices declined for a ninth month, giving the European Central Bank more reason to keep borrowing costs at a record low.

German prices fell 10.6 percent in July from a year earlier, after declining 8.8 percent the previous month, the Federal Statistics Office said today in Wiesbaden.

“We suspect the euro-dollar will struggle this week, given the relatively anemic economic performance of the euro-zone,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington.

A recovery of the 16-nation euro region will take some time, ECB council member Erkki Liikanen said, according to the Finnish newspaper Uutispaeivae Demari yesterday.

Standard & Poor’s yesterday lowered Estonia’s long-term sovereign credit rating to A-, and cut Latvia’s rating to two notches below investment grade, citing the region’s recession.

Won Slumps

Korea’s won declined for a third day, its longest losing streak in four weeks, after the central bank kept the benchmark rate unchanged at a record low 2 percent today and Governor Lee Seong Tae said doubts over a recovery remain.

“The BOK may be curbing expectations of early rate hikes,” said Daniel Hui, a foreign-exchange strategist at HSBC Holdings Plc in Hong Kong. “That might also be hurting the Korean won.”

The won closed down 0.9 percent at 1,239.20 per dollar after dropping to 1,243.95, the weakest level since July 30.

Losses in the dollar were tempered by speculation U.S. reports this week will provide more evidence the world’s largest economy is emerging from recession.

U.S. retail sales rose 0.8 percent in July, after a 0.6 percent gain in June, a Bloomberg survey showed before the Commerce Department’s Aug. 13 report. Industrial production increased 0.4 percent in July, following a 0.4 percent drop in June, according to a separate Bloomberg survey before the Federal Reserve report on Aug. 14.

‘Turn Higher’

“The case is building for an eventual turn higher of the dollar,” Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia, wrote in a research note yesterday. “The U.S. economy is improving and the economy will likely emerge from the global recession ahead of Europe.”

U.S. policy makers will keep their benchmark interest rate as low as zero at the two-day Federal Open Market Committee meeting starting today according to all 43 economists surveyed by Bloomberg.

The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners such as the euro, fell 0.2 percent to 79.107.

The euro is likely to weaken to 130 yen by year-end after the 16-nation currency failed to rise through so-called resistance at 141.04 yen, according to Deutsche Bank AG, citing trading patterns.

Resistance at that level represents the 50 percent retracement of the euro’s decline from last year’s high of 169.96 yen reached on July 23, to this year’s low of 112.12 on Jan. 21, based on a series of numbers known as the Fibonacci sequence. Resistance refers to levels where sell orders may be clustered. Since reaching January’s low, the euro has gained 22 percent versus the yen.

“The European currency has strengthened too quickly,” said Koji Fukaya, a senior currency strategist at the Tokyo unit of Deutsche Bank, the world’s biggest foreign-exchange trader. “It will struggle to break 140 yen.”

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