By Anchalee Worrachate and Yasuhiko Seki
Sept. 24 (Bloomberg) -- The yen rose against the dollar and the euro amid speculation Japanese companies returned from a three-day holiday to repatriate funds before the end of the fiscal first half.
The Japanese currency climbed most against the British pound and South Korean won after a government report showed Japan’s exports fell for an 11th month in August, curbing demand for higher-yielding assets. The Australian dollar advanced toward a 13-month high as the central bank said the nation’s lenders are weathering the global recession.
“Japan is very much in repatriation mode now and this is driving the yen higher,” said Neil Jones, head of European hedge-fund sales in London at Mizuho Corporate Bank Ltd. “People have just returned from three days of holiday and there are probably a lot of buy orders ahead of the end of their first half of the financial year.”
The yen appreciated to 90.53 per dollar as of 9:47 a.m. in London, from 91.29 in New York yesterday, and reached 90.42, the strongest since Sept. 16. It was at 133.54 per euro, from 134.52. The euro rose to $1.4759, from $1.4735 yesterday, when it advanced to $1.4844, its highest level since Sept. 22, 2008.
Japan’s currency has risen 6.5 percent against the dollar this quarter. A strengthening yen reduces the value of overseas sales by Japanese companies when converted into their home currency. Large manufacturers expected the yen to trade at an average of 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.
Exports Tumble
The Japanese government announced this year that it would waive taxes on repatriated profits from April 1 to help support the economy. Under previous laws, companies had to pay a combined 40 percent tax on overseas earnings. The country’s fiscal first half ends on Sept. 30. Japanese markets were closed Sept. 21-23 for national holidays.
Japan’s shipments abroad dropped 36 percent from a year earlier, compared with a 36.5 percent decline in July, the Finance Ministry said today in Tokyo. From a month earlier, exports fell 0.7 percent, the second-straight decrease.
Today’s report suggests the boost in overseas demand that helped the economy expand in the second quarter may be moderating as governments exhaust stimulus spending. New Japanese Prime Minister Yukio Hatoyama meets his counterparts from Group of 20 nations in Pittsburgh today to discuss how to sustain a recovery from the worst global recession since the 1930s.
Aussie Dollar
The Australian dollar strengthened against 15 of the 16 major currencies after the Reserve Bank of Australia said the nation’s four largest banks, including Westpac Banking Corp. and Commonwealth Bank of Australia, posted combined after-tax profits of A$8.6 billion ($7.5 billion) in the latest half year.
“The economy and the financial structure were more resilient than the market had anticipated,” Claudio Piron, Singapore-based head of Asia currency research at JPMorgan Chase & Co., said in a Bloomberg Television interview. “It really underpins the Aussie.”
Australia’s currency traded at 87.41 U.S. cents, from 86.97 cents in New York yesterday, when it rose to 87.89 cents, the highest level since Aug. 22, 2008. The New Zealand dollar was at 72.32 U.S. cents, from 71.97 cents yesterday, when it climbed to 73.12 cents, the strongest since Aug. 4, 2008.
“The Australian financial system has remained resilient,” the RBA said in its half-yearly financial stability review released today in Sydney. “Banks have experienced only a modest decline in profitability” and are better placed than those in other economies to weather any further global turmoil, it added.
Business Confidence
The euro advanced after a report showed German business confidence rose to a 12-month high this month. The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 91.3 in September, from 90.5 in the previous month. Economists expected a gain to 92, the median of 40 forecasts in a Bloomberg survey showed.
“The underlying bias for the dollar is to weaken as the risk sentiment remains intact,” Yuichiro Harada, senior vice president in Tokyo of the foreign-exchange division at Mizuho Corporate Bank, a unit of Japan’s second-largest banking group.
The euro dropped against the dollar earlier after Reuters cited a French government official as saying the country is concerned about the currency’s strength. France intends to press governments attending this week’s G-20 meeting to set a timeframe for a discussion on exchange rates, the report said.
Market ‘Sensitive’
“The market is becoming sensitive to comments from monetary authorities as the G-20 meeting approaches,” said Kosei Fujita, a foreign-currency dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “As comments from French government officials added to concerns, people are inclined to close long positions on the euro.” A long position is a bet that an asset will rise.
G-20 leaders are meeting in Pittsburgh to discuss the latest developments of the global economy and financial markets.
Demand for the dollar waned after the Federal Reserve said yesterday it will keep interest rates low for an “extended period.” The central bank also said it will slow its purchases of mortgage securities, seeking to avoid disrupting the housing market as an economic recovery takes hold.
“The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010,” the Federal Open Market Committee said in a statement yesterday after meeting in Washington. The $1.45 trillion program was scheduled to cease by the end of this year.
Signs of Recovery
Chairman Ben S. Bernanke and fellow policy makers indicated for the first time since August 2008 that the economy is recovering from the recession.
Purchases of existing U.S. homes climbed to a 5.35 million annual rate in August, the most since August 2007, from a 5.24 million rate in July, according to a Bloomberg survey of economists. The National Association of Realtors will release the report at 10 a.m. in Washington.
“Signs of an improvement in the U.S. economy have so far failed to boost inflation expectations or hopes for an early exit from the current policy,” said Jitsuo Tachibana, senior manager for marketing at Sumitomo Trust & Banking Co. “As interest rates in the U.S. remain low, the hyper-liquid dollar will continue to trickle down into higher-yielding currencies.”
To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net
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