Yen Climbs on Prospects Nomura Share Offer Attracting Investors

By Yoshiaki Nohara and Ron Harui

Oct. 7 (Bloomberg) -- The yen rose to the highest level in more than a week against the dollar on speculation foreign investors will buy into a share sale by Nomura Holdings Inc., Japan’s biggest brokerage.

The dollar gained for a fifth day against the pound after Kansas City Federal Reserve President Thomas Hoenig said the central bank should start raising interest rates “sooner rather than later.” New Zealand’s currency gained as Asian stocks continued a global rally and Auckland-based Fonterra Cooperative Group Ltd. said milk powder prices rose to a 13-month high, sparking optimism the nation’s exports are recovering.

“Foreign investors may buy shares as part of their portfolios amid signs of a recovery in the global economy,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. “This may lead to buying of the yen.”

The yen rose to 88.56 per dollar as of 7:41 a.m. in London from 88.82 in New York Yesterday. It earlier touched 88.49, the highest since Sept. 28. The euro was at 130.28 yen from 130.76 yen. The dollar rose to $1.5874 per pound from $1.5922 in New York yesterday. The greenback was at $1.4716 per euro from $1.4722 yesterday, when it reached $1.4762, the weakest since Sept. 24.

The yen rose versus all 16 major currencies on speculation foreign investors will buy Japanese equities. Nomura will sell 800 million shares to local and overseas investors at 568 yen a piece, according to statements filed to the Ministry of Finance. Nomura will raise 433 billion yen ($5.1 billion) from the offering after deducting costs, it said on Oct. 5.

Nomura Shares

Nomura’s share sale is heavily oversubscribed, the Wall Street Journal reported yesterday, citing people familiar with the situation.

The dollar advanced against euro and pound after Hoenig yesterday said raising interest rates wouldn’t derail the U.S. economic recovery.

“Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy,” he said in a speech in Denver. “I would not support a tight monetary policy in the current environment, but my experience tells me that we will need to remove our very accommodative policy sooner rather than later.”

Fed Comments

Hoenig spoke after Australia became the first among Group of 20 economies to raise borrowing costs since the start of the financial crisis. His comments echoed those by Fed Governor Kevin Warsh, who said on Sept. 25 the central bank may need to tighten “with greater force than is customary.”

Richmond Fed President Jeffrey Lacker, who said on Oct. 1 that rates may need to be raised even with unemployment near 10 percent.

Fed Chairman Ben S. Bernanke is set to give the keynote speech tomorrow at a conference on “Key Developments in Monetary Economics” in Washington.

“The Fed is showing signs to exit, which is positive for the dollar,” said Toshiya Yamauchi, a Tokyo-based manager of the foreign-exchange margin trading department at Ueda Harlow Ltd. “It’s clear the U.S. economy has reached the bottom and is beginning to rebound.”

The euro weakened as the currency’s 14-day stochastic oscillator versus the dollar rose to 66.5 yesterday from 45.9 on Oct. 5, nearing the 80 level some traders use as a signal that an asset has risen too quickly and is poised to decline.

Short-Covering

“The dollar is undergoing some short-covering as its losses may be overdone a bit,” said Nobuaki Kubo, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co. “However, the greenback’s rebound is likely to be limited, given that Asian stocks are rising.”

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in an asset’s value. A short position is a bet an asset will decline.

Futures traders increased bets to the most in 1 1/2 years that the euro will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed on Oct. 2.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 39,766 on Sept. 29, the biggest amount since March 25, 2008, compared with net longs of 38,000 a week earlier. The data are sometimes used as a contrary indicator.

Fed Rates

Gains in the dollar were tempered as analyst forecasts compiled by Bloomberg show the Fed will start raising its benchmark rate in the third quarter of 2010, as will the European Central Bank.

“We are still predicting that the Fed will be on hold until 2011 on interest rates,” said Ray Attrill, global research director at Forecast Ltd. in Sydney. “That will continue to drive down the dollar on the basis that the Fed will probably be among the last to exit.”

The ECB will hold its main refinancing rate at a record low of 1 percent at tomorrow’s meeting, and the Bank of England will keep its rate at a record low of 0.5 percent, according to economists in Bloomberg News surveys. The Fed funds target range is zero to 0.25 percent.

Milk Prices

New Zealand’s currency gained against 11 of its 16 major counterparts after Fonterra, the world’s largest dairy exporter, said milk powder for December delivery rose 5.1 percent to $3,019 a metric ton at auction yesterday. That is the highest price since September last year.

“The Fonterra news caused the kiwi to jump,” said Tim Kelleher, vice president of institutional banking and markets in Auckland at Commonwealth Bank of Australia. “Unless we see the U.S. dollar turn around or equities weaken, the Australian and kiwi dollars will carry on higher, with dips very well supported.”

The so-called kiwi rose as much as 0.3 percent against the dollar and traded at 73.46 U.S. cents.

Japan’s Nikkei 225 Stock Average added 1.1 percent, and the MSCI Asia Pacific Index of regional shares advanced 1.6 percent. The Standard & Poor’s 500 Index gained 1.4 percent in New York yesterday.

New Zealand’s dollar has been the best performer among the 16 most-active currencies against the greenback over the past three months on speculation that the Reserve Bank of New Zealand will raise interest rates.

“Whilst the governor has assured kiwi mortgagees that rates are unlikely to rise until the later part of 2010, the risks of an earlier move are growing by the day,” Jarrod Kerr, a senior interest-rate strategist at Commonwealth Bank of Australia in Sydney, wrote in a note to clients yesterday.

Governor Alan Bollard said July 30 that the overnight cash rate will stay at 2.5 percent or move lower until the latter part of 2010.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.