Yen Trades Near 7-Week High on Concern Asset Prices Overblown

By Ron Harui

Sept. 1 (Bloomberg) -- The yen traded near a seven-week high against the dollar amid speculation asset prices are overblown, boosting demand for the relative safety of the Japanese currency.

The yen may gain for a second day versus Singapore’s dollar after a technical chart signaled Asian stocks’ 62 percent rally since the March low was excessive. Australia’s dollar retreated from close to its highest level this year against the greenback after the nation’s central bank held interest rates at 3 percent and said monetary policy is appropriate. The euro rose toward a three-week high versus the dollar before a German report that may show retail sales in Europe’s largest economy rose in July.

“Investors are turning risk averse amid worries over the sustainability of the economic rebound,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The bias is for the yen to strengthen.”

The yen traded at 93.03 per dollar as of 6:25 a.m. in London from 93.13 in New York yesterday, when it rose to 92.55, the highest level since July 13. The currency was at 133.56 per euro from 133.48. The euro climbed to $1.4355 from $1.4334. It touched $1.4406 on Aug. 27, the strongest level since Aug. 7.

The Australian dollar fell to 84.17 U.S. cents from 84.39 cents. It reached 84.78 cents on Aug. 14, the highest level since Sept. 22, 2008. The so-called Aussie declined to 78.31 yen from 78.57 yen.

Japan’s currency traded at 64.60 versus Singapore’s dollar from 64.61 yesterday. The MSCI Asia Pacific Index of regional shares advanced 0.7 percent today, having rallied 62 percent from a more than five-year low on March 9.

Technical Charts

The stock index’s 14-day stochastic oscillator climbed to 82.9 today from 69.5 yesterday, exceeding the 80 threshold that indicates an asset price may have risen too fast and is poised to decline. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in an asset’s value.

Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia, making the South Pacific nation’s assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves may erase any profits.

Yen strength was limited after a Chinese government report showed the nation’s manufacturing expanded in August at the fastest pace in 16 months, allaying concerns the country’s economic recovery may falter. The nation’s benchmark Shanghai Composite Index rebounded 2.2 percent from yesterday’s 6.7 percent plunge.

“The data suggest the Chinese economy may be on a positive track,” said Masashi Kurabe, head of currency sales and trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in Hong Kong. “It could be supportive for risk appetite and mildly negative for the yen.”

China’s PMI

The official Purchasing Managers’ Index rose to a seasonally adjusted 54 from 53.3 in July, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.

Australia’s dollar fell for the first time in four days against its U.S. counterpart after Reserve Bank of Australia Governor Glenn Stevens said in a statement today the central bank’s current stance of keeping borrowing costs low to foster economic growth is appropriate.

“Despite growing expectations for a tightening bias and a referral to the ‘currently inappropriate emergency cash rate,’ the RBA today defied the hawks and published a firmly neutral supporting statement,” Annette Beacher, senior strategist in Singapore at TD Securities, wrote in a research note today. “In reaction to the non-hawkish statement, the Australian dollar was 84.43 cents into the release and now 84.14 cents half an hour later.”

RBA Rate Bets

Traders pared bets the RBA will raise the benchmark rate by a quarter-percentage point as early as next month, according to interbank futures on the Sydney Futures Exchange. They tipped a 36 percent chance of an increase following the statement. Before today’s decision, they forecast a greater than 50 percent chance.

The euro advanced for a second day versus the dollar as the Federal Statistics Office in Wiesbaden may say today Germany’s retail sales, adjusted for inflation and seasonal swings, climbed 0.7 percent in July after a 1.3 percent drop in the previous month, a Bloomberg survey of economists showed.

“An improvement in retail sales could be a plus for the euro-zone economy,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s currency broker. “The euro may trade in a firm manner.”

European Central Bank Governing Council member Ewald Nowotny said yesterday he doesn’t expect a double-dip recession in the 16-nation euro region as long as policy makers don’t hurry to remove emergency stimulus measures.

“I don’t see a perspective of a W-shaped recession if there’s no premature exit strategy,” Nowotny said in a panel discussion in Alpbach, Austria. “What I see is the danger that we’ll have very low rates of positive growth for some time.”

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.

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