Yen Rises as Fujii Repeats Reluctance to Stem Currency’s Gains

By Lukanyo Mnyanda and Yasuhiko Seki

Oct. 20 (Bloomberg) -- The yen rose against the dollar and the euro after Japanese Finance Minister Hirohisa Fujii repeated his reluctance to intervene in the foreign-exchange markets to halt the currency’s gains.

Japan’s currency traded at its strongest level in three days against its U.S. counterpart. The U.K. pound snapped five days of gains versus the dollar after Qatar Holding LLC said it plans to sell more than 379 million shares of Barclays Plc. The Australian and New Zealand dollars dropped from the strongest levels in at least 14 months as technical indicators indicated their gains may have been exaggerated.

Japanese officials are not “entirely clear on how they should reign in the market and that’s really played out in terms of the direction of the yen,” said Elizabeth Gregory, a markets strategist in Geneva at ACM Advanced Currency Markets, which handles about $150 billion of foreign-exchange trades a month. “The commentary has been a bit muddled. They started off by saying it wouldn’t be a bad thing to have a strong yen and that caused the market to fly off in one direction.”

The yen strengthened to 90.31 per dollar as of 9:43 a.m. in London, from 90.55 in New York yesterday, and to 135.07 per euro, from 135.51. The euro was at $1.4956, from $1.4965. It touched $1.4994 earlier, the strongest level since August 2008.

The yen’s strength is due to a weakening dollar, stemming from the Federal Reserve’s “easy” monetary policy, Fujii said today at the Japan National Press Club in Tokyo. The devaluation of currencies can hurt the global economy, he said.

Pound’s Decline

The pound fell as U.K. banking shares slid after Qatar Holding, the Doha-based arm of the Qatar Investment Authority, said it is halving its stake in Barclays, Britain’s second- largest lender. The U.K. currency lost 0.2 percent to $1.6392 and declined for the first time since Oct. 14 against the euro to trade at 91.28 pence, from 91.10 pence yesterday.

The euro stayed within a half a cent of trading at $1.50 for the first time in 14 months before reports this week that economists said will show the U.S. housing market and German business confidence improved.

Australia’s dollar lost 0.5 percent to 92.50 U.S. cents, after earlier rising to 93.11 cents, the highest level since August 2008. New Zealand’s dollar also declined by 0.5 percent and was at 75.31 cents, retreating from as high as 75.76 cents, the strongest level since July 2008.

Aussie, Kiwi

The so-called Aussie’s 14-day relative strength index, or RSI, has been above 70 for the past seven days, a level that typically signals a price reversal may occur. The kiwi’s RSI climbed above 70 yesterday.

The currencies rose earlier after Reserve Bank of Australia officials said in minutes of their Oct. 6 meeting released today in Sydney that a “very expansionary setting of policy was no longer necessary, and possibly imprudent.” The risks in waiting to raise borrowing costs “had increased,” policy makers said.

Central bank Governor Glenn Stevens and his board raised the key interest rated by a quarter percentage point to 3.25 percent at the meeting and signaled they may raise rates again as soon as next month.

Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. make the yen and dollar favorite funding currencies for so-called carry trades, in which investors borrow where interest rates are relatively low and buy assets in nations where returns are higher. The risk in such trades is that currency-market moves can erase profits.

Dollar’s Drop

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against the yen, euro, Swiss franc, pound, Swedish krona and Canadian dollar, dropped for a second day, sliding 0.3 percent to 75.266, the lowest level in 14 months.

U.S. housing starts rose to an annual rate of 610,000 in September from 598,000 in August, according to a Bloomberg News survey of economists before the Commerce Department report today. The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 92 in October from 91.3 the previous month, according to a separate survey. The Munich- based institute will release the report Oct. 23.

Demand for the dollar also weakened after the Fed signaled in a statement yesterday that it will keep borrowing costs down while assessing ways to drain money from the banking system.

The Fed said it’s working with market participants to assess the use of reverse repurchase agreements to withdraw some of the record amounts of cash it added to the financial system.

“This work is a matter of prudent advance planning by the Federal Reserve, and no inference should be drawn about the timing of monetary-policy tightening,” the statement said.

Trichet on Dollar

Gains in the euro were limited on speculation the 16-nation region’s finance ministers will reiterate concern about the currency’s recent strength at a two-day meeting ending today.

“Excessive volatility” in currency rates is “bad for economic development,” European Central Bank President Jean- Claude Trichet said in an unscheduled appearance at a press conference late yesterday. “It’s a problem which worries us,” said Luxembourg’s Jean-Claude Juncker, who led the talks.

“Policy makers may express worries that the euro is too strong, especially against China’s renminbi,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “Further euro appreciation will likely hurt the euro- zone’s exports more.”

The euro has gained 16 percent against the dollar and the renminbi, or yuan, in the past six months, making the region’s exports more expensive to overseas buyers and threatening the recovery from the worst recession since World War II.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net