By Anchalee Worrachate and Yasuhiko Seki
Sept. 25 (Bloomberg) -- The yen climbed, heading for a weekly advance against the euro, on speculation Japanese exporters repatriated profits before the fiscal first half ends this month.
The dollar pared a weekly gain against the euro after Reuters said a draft communiqué by Group of 20 leaders pledged to maintain stimulus measures. The pound was set for a third weekly loss against the euro after a newspaper reported that Bank of England Governor Mervyn King said the currency’s drop would help the economy rebalance.
“Fund repatriation is a seasonal factor that is supporting the yen at the moment,” said Carl Hammer, a senior currency strategist at SEB AB in Stockholm. “Also, there seems to be more acceptance among Japanese authorities for yen appreciation. But in my view, the yen is looking expensive.”
Japan’s currency strengthened to 132.91 yen per euro as of 9:09 a.m. in London, from 133.86 yen in New York yesterday, after earlier reaching 132.53 yen, the highest level since Sept. 16. It appreciated to 90.58 yen per dollar, from 91.27 yen.
The dollar was at $1.4676 per euro, from $1.4666 yesterday in New York and $1.4712 a week ago. That would be the first weekly advance since the period ended Sept. 4.
The G-20 also agreed to take steps to restrict excesses in the financial industry and cooperate on increasing capital standards for banks, Reuters said, citing the draft report. The G-20 kicked off a two-day meeting yesterday in Pittsburgh.
Profit Repatriation
“World leaders probably want to keep stimulus steps in place until the recovery proves to be sustainable,” said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Corp. in Tokyo. “The trend for risk taking is likely to persist, with the dollar prone to weaken.”
Japan’s currency was set for a weekly advance versus 14 of its 16 major counterparts on prospects the nation’s exporters will take advantage of an April 1 rule change that waives taxes on repatriated profits. Under previous laws, companies had to pay a combined 40 percent tax on overseas earnings. The first half of Japan’s fiscal year ends Sept. 30.
Japanese exports fell 36 percent in August from a year earlier, the Finance Ministry said yesterday, an 11th-straight decline. The drop was exacerbated by the yen’s 18 percent surge against the dollar in the past year, making Japanese goods more expensive abroad and lowering the value of repatriated earnings.
Toyota Motor Corp. Executive Vice President Yukitoshi Funo said today the Japanese currency’s “current level around 90 yen is a bit painful. I think the yen should be a little weaker.” Toyota, the world’s largest automaker, forecasts a 450 billion yen ($5 billion) net loss for the year ending March 2010.
‘Very Helpful’
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.
The pound reached the lowest level in more than five months against the euro after the Newcastle Journal cited BOE governor King as saying the U.K. currency’s drop is “very helpful” to the process of rebalancing the British economy.
“The pound was the star of all the currencies that fell today,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
The pound declined to as low as $1.5918 today, the weakest since June 8, from $1.6059 yesterday in New York. The U.K. currency depreciated to 91.67 pence per euro, reaching the lowest level since April 1.
The dollar rose earlier after Federal Reserve Governor Kevin Warsh said the U.S. central bank may need to be as aggressive in reversing money-easing actions as policy makers were in starting them.
‘Whatever it Takes’
“If ‘whatever it takes’ was appropriate to arrest the panic, the refrain might turn out to be equally necessary at a stage during the recovery to ensure the Federal Reserve’s institutional credibility,” Warsh said in an opinion piece posted late yesterday on the Wall Street Journal’s Web site.
His comments followed statements by the Federal Reserve and U.S. Treasury that they’re scaling back emergency programs aimed at combating the financial crisis, reducing support for firms that now have an easier time getting funding.
European policy makers are also moving to paring back monetary stimulus. The European Central Bank said it will discontinue its 84-day U.S. dollar liquidity-providing operations with the Fed “given the limited demand and the improved conditions in funding markets.” The ECB will keep conducting seven-day dollar operations.
Carry Trades
“The announcements by these central banks triggered buybacks of the dollar, which was used to finance investments on riskier assets,” said Fumio Mizutani, a currency analyst at currency-margin company ODL Japan Co. “We now need to carefully ascertain whether this action will affect dollar-carry investments.”
In carry trades, investors borrow in a nation with low interest rates and invest where returns are higher. The risk in such trades is that currency market moves will erase profits.
Benchmark interest rates are 2.5 percent in New Zealand and 3 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S, making investments in the South Pacific nations’ comparatively attractive.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
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