Yen Strengthens Against Dollar as Exporters Repatriate Earnings

By Yasuhiko Seki and Lukanyo Mnyanda

Oct. 30 (Bloomberg) -- The yen rose against the dollar, set for its first weekly gain in three, on speculation Japanese exporters purchased the currency after its decline increased the appeal of repatriating the proceeds of foreign sales.

Demand for the yen also increased after the Bank of Japan said it will stop buying corporate debt at the end of the year, as central banks around the world phase out emergency measures begun during the financial crisis. The dollar headed for a fourth month of losses against the euro, the longest stretch of declines since 2004, as the U.S.’s return to growth in the third quarter boosted demand for higher-yielding assets.

“A lot of exporters were reluctant to come in and buy yen at below 90 per dollar and they’ve now come back to the market,” said Lee Hardman, a foreign-exchange strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd. “There’s been a degree of buying after the BOJ’s decision to end some of its support measures.”

The yen strengthened to 91.01 against the dollar as of 8:33 a.m. in London, from 91.41 yesterday in New York. Japan’s currency was at 135.09 per euro from 135.51 yesterday. The dollar traded at $1.4816 per euro, from $1.4822.

Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.

Toyota Motor Corp. and Honda Motor Co., Japan’s two biggest automakers, may increase overseas production as a stronger yen makes exports less competitive. Japanese carmakers have lost U.S. market share to South Korea’s Hyundai Motor Co. after the yen rose to a 13-year high against the dollar in January.

‘Liquidity Is Ample’

Australia’s dollar is set for a record ninth month of gains after a rally in stocks worldwide and higher prices for commodities that comprise more than half of the South Pacific nation’s exports.

“The recovery is still at work and the liquidity is ample,” said Tomohiro Nishida, a dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “You can’t stop money flying into higher-yielding currencies at the expense of funding currencies.”

The MSCI Asia Pacific Index of regional shares advanced 1.5 percent today and the Nikkei 225 Stock Average gained 1.5 percent. The Standard & Poor’s 500 Index increased 2.3 percent yesterday and crude oil for December delivery increased 3.1 percent to $79.87 a barrel.

The Australian dollar slipped 0.2 percent today to 91.28 U.S. cents, trimming a 3.4 percent gain in October.

U.S. Recovering

The dollar fell the most against the South Korean won as a Bloomberg survey of economists showed that the Institute for Supply Management-Chicago Inc.’s business barometer probably rose to 49.0 in October from 46.1 in the previous month. The report is due today.

Adding to signs the world’s largest economy is recovering, the Institute for Supply Management’s factory gauge rose to 53.0 in October from 52.6 in the previous month, according to a separate Bloomberg News survey before the release on Nov. 2. Fifty is the dividing line between expansion and contraction.

The Commerce Department reported yesterday that U.S. gross domestic product grew at a 3.5 percent annual pace in the third quarter, after shrinking the previous four periods. The median forecast of 79 economists in a Bloomberg survey was for an expansion of 3.2 percent.

Investors remained skeptical that the Federal Reserve will increase borrowing costs early next year. Fed funds futures show a 34 percent chance that the central bank will lift its target lending rate at the March meeting from a range of zero to 0.25 percent, compared with a 47 percent likelihood a month earlier.

Bank of Japan

“The Fed is still far away from exiting credit easing,” said Kengo Suzuki, manager of the foreign bond department in Tokyo at Mizuho Securities Co. “The hyper-liquidity will keep a lid on the dollar.” The Federal Reserve Board holds a two-day policy meeting next week.

The Bank of Japan today said it will let programs to buy corporate debt expire at year-end as policy makers around the world start phasing out emergency measures taken at the height of the financial crisis.

The BOJ decided to end purchases of commercial paper and corporate bonds from lenders as scheduled, while extending unlimited collateral-backed lending through March 31, the bank said in a statement released in Tokyo today. It kept the benchmark interest rate unchanged at 0.1 percent.

‘Good Data’

“The BOJ’s decision to unwind some of its unconventional steps is being perceived among foreigners as limiting the availability of excessive liquidity,” said Yuji Saito, head of the foreign-exchange group at Societe Generale SA in Tokyo. “This may damp appetite for yen carry trades, thereby pushing up the Japanese currency.”

The yen headed for its ninth-straight monthly decline against the New Zealand dollar, the longest slide since 1997.

“Good data from Japan will strengthen the risk appetite that resurfaced on strong U.S. data,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.

Separate Japanese government figures showed the job-to- applicant ratio, a leading indicator of employment trends, improved for the first time in more than two years. The ratio rose to 0.43 last month from a record low of 0.42 in August, meaning there are 43 jobs for 100 job seekers.

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