Forex Market Update: USD Pullback Ahead Of Thanksgiving

Daily Forex Fundamentals | Written by Saxo Bank | Nov 26 09 10:45 GMT |

Major breaks not likely until next week. HEADLINES - PREVIOUS SESSION UK GDP YoY (3Q P) out at -5.1% as expected. US Personal Income MoM (Oct) out at 0.2% vs. 0.1% expected. US Personal Spending MoM (Oct) out at 0.7% vs. 0.5% expected. US PCE Deflator YoY (Oct) out at 0.2% vs. 0.1% expected. US Durable Goods Orders MoM (Oct) out at -0.6% vs. 0.5% expected. US Durable Ex Transportation MoM (Oct) out at -1.3% vs. 0.7% expected. US Initial Jobless Claims out at 466K vs. 500K expected. US Continuing Claims out at 5423K vs. 5565K expected. US U. of Michigan Confidence (Nov F) out at 67.4 vs. 67 expected. US New Home Sales (Oct) out at 430K vs. 404K expected. AU Private Capital Expenditures (3Q) out at -3.9% vs. 1.0% expected. SW Trade Balance Kroner (Oct) out at 5.1B vs. 9.5B expected. NO Unemployment Rate (Nov) out at 2.6% as expected. THEMES TO WATCH - UPCOMING SESSION No time given: GE CPI MoM (Nov P) expected at 0.0%. 21:45 - NZ Trade Balance (Oct) expected at -480M. 23:30 - JN Jobless Rate (Oct) expected at 5.4% 23:30 - JN Job-To-Applicant Ratio (Oct) expected at 0.44. 23:30 - JN National CPI YoY (Oct) expected at -2.4%. 23:30 - JN Retail Trade MoM (Oct) expected at -0.9%. Market Comments The market is in 'pull-back mode' after the USD broke key supports vs. JPY and EUR on Wednesday. The reason is probably Thanksgiving and the thin and spiky market conditions towards the weekend. We will be careful and not read too much from the technical developments in this time span, but here are things as we see them: EURUSD was retracing after a very strong Wednesday where it broke key resistance (October high, 1.5063). The reason was the confusing and dovish FOMC minutes, which due to unrealistically low expectations for the US unemployment AND low rate expectations virtually assured the market that US monetary policy would be lax for an even longer period of time than previously thought. USDJPY: Despite the ailing Japanese economy, it seems that the market is still focusing on the new governments comments about the strength of JPY (tolerable). In this sense, the JPY is working as a reserve CNY or a safety valve on the stressed USDCNY. GBP: The honeymoon relief seems to be over. The trade-weighted index is down more than 2.5% in the past two weeks, probably due to the still miserable GDP figures (even in Q3 where most other countries turned positive) and the continuation of the Carry Trade funded by the usual, high financial sector to GDP currencies: GBP and USD. Even with the pull-back in the USD today, the GBP is underperforming. It looks like GBPJPY will test 140 key support within the next week, but beware the host of Japanese data tonight. Looking at EM currencies, the USD pull-back has left them weaker. Especially USDMXN showed some potential downside below the 12.80 level when searching for a potential break lower. It now looks like we will have to wait until next week for such a move lower. Saxo Bank Analysis Disclosure & Disclaimer SaxBank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by SaxBank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. 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If an analysis contains recommendations tbuy or sell a specific financial instrument, such recommendation should be seen as SaxBanks opinion that the specific instrument will respectively outperform the relevant market or underperform compared tthe market. SaxBanks recommendations should statistically correspond tan even distribution between buy and sell recommendations. The recommendations may expire promptly due tmarket volatility and in general, SaxBank does not anticipate its recommendations tbe valid more than one month. An analysis will be updated if and only if a market development or other issues relevant tthe analysis render a new analysis on the same topic relevant. SaxBanks analysis does not cover any specific financial product over time but only products which SaxBanks strategy team finds it important tcover at any given point in time. 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Forex Technical Analysis

Daily Forex Technicals | Written by DeltaStock Inc. | Nov 26 09 10:17 GMT |

EUR/USD Current level-1.5080 EUR/USD is in a broad consolidation, after bottoming at 1.2331 (Oct.28,2008). Technical indicators are neutral, and trading is situated above the 50- and 200-Day SMA, currently projected at 1.4793 and 1.3523. Our target at 1.5130 has been filled and the pair entered a larger consolidation pattern above 1.50+. Intraday initial support comes at 1.5057, followed by 1.5016. Crucial on the downside remains 1.4920 and next target is 1.5280. RSI on the 2 h. chart shows a convergence, so new highs beyond 1.5146 seem inevitable at the moment. Resistance Support intraday intraweek intraday intraweek 1.5146 1.5290 1.5057 1.4623 1.5280 1.6040 1.4920 1.4444 USD/JPY Current level - 86.90 A short-term bottom has been set at 87.12 and a large consolidation is unfolding since. Trading is situated below the 50- and 200-day SMA, currently projected at 94.86 and 94.84. The pair broke through 88.01 and 87.12 mid-term low, so the downtrend has been renewed on all the charts, targeting 83.45. A temporary low is in place at 86.30 and intraday bias is slightly positive for 87.20 and probably 88.01. Important on the upside is 88.75 and this level should remain intact in order to preserve the bearish bias. Resistance Support intraday intraweek intraday intraweek 87.20 92.40 86.30 83.53 88.75 97.79 85.40 79.60 GBP/USD Current level- 1.6540 The pair is in a downtrend after peaking at 1.7042. Trading is situated above the 50- and 200-day SMA, currently projected at 1.6454 and 1.5258. As expected, the pair reversed its direction at 1.6746 and with the break below 1.6649 support it is confirmed, that a top is in place and the negative bias is renewed towards 1.6250 and 1.6130. Current downtrend is expected to enter a minor consolidation above 1.6495 support, before breaking below, towards 1.6250 support. Important resistance on the upside is 1.6649. Resistance Support intraday intraweek intraday intraweek 1.6649 1.7042 1.6495 1.6130 1.6840 1.7442 1.6460 1.5706 DeltaStock Inc. - Online Forex & Securities Broker www.deltastock.com RISK DISCLAIMER: These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from generally accessible data sources. The forecasts made are based on technical analysis. However, Delta Stock’s Analyst Dept. also takes into consideration a number of fundamental and macroeconomic factors, which we believe impact the price moves of the observed instruments. Delta Stock Inc. assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon the information on this page. Delta Stock Inc. shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, losses or unrealized gains that may result. Any information is subject to change without notice.

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Forex and Dow Jones Recommended Levels

Daily Forex Technicals | Written by FXtechtrade | Nov 26 09 09:58 GMT |

EUR/USD Today's support: - 1.5012(main), where correction is possible. Break would give 1.4980, where correction also may be. Then follows 1.4962. Break of the latter would result in 1.4946. If a strong impulse, we would see 1.4929. Continuation will give 1.4897. Today's resistance: - 1.5154 and 1.5169(main). Break would give 1.5206, where a correction is possible. Then goes 1.5228. Break of the latter would result in 1.5253. If a strong impulse, we'd see 1.5278. Continuation will give 1.5300. USD/JPY Today's support: - 89.17 and 85.91(main). Break would bring 85.73, where correction is possible. Then 85.47, where a correction may also happen. Break of the latter will give 85.28. If a strong impulse, we would see 85.04. Continuation would give 84.86 and 84.71. Today's resistance: - 87.37 and 87.64(main), where a correction may happen. Break would bring 87.83, where also a correction may be. Then 88.02. If a strong impulse, we would see 88.24. Continuation will give 88.53, 88.90 and 89.10. DOW JONES INDEX Today's support: - 10423.10, 10395.00 and 10358.25(main), where a delay and correction may happen. Break of the latter will give 10333.12, where correction also can be. Then follows 10295.75. Be there a strong impulse, we would see 10271.18. Continuation will bring 10248.70. Today's resistance: - 10486.40 and 10528.42(main), where a delay and correction may happen. Break would bring 10544.28, where a correction may happen. Then follows 10572.40, where a delay and correction could also be. Be there a strong impulse, we'd see 10598.70. Continuation would bring 10618.80. FXtechtrade http://www.fxtechtrade.com Disclaimer: Any information presented by Nikolajs Serikovs at this very website should be in no way understood as an offer, promise or guarantee for receiving a profit or avoiding the losses. Stated here levels of support and resistance must not be construed as an investment advice or endorsement for any financial instrument. There exists no guarantee that the market would behave in accordance with the information stated here Prepared in Republic of Latvia for the worldwide distribution.

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South Korean Manufacturers’ Confidence Drops for Second Month

By Seyoon Kim

Nov. 26 (Bloomberg) -- South Korean manufacturers’ confidence slipped to the lowest level in four months due to uncertainty about the outlook for domestic demand.

An index measuring expectations for December fell to 85 from 93 a month earlier, according to a survey of 1,475 manufacturers released by the Bank of Korea today in Seoul. A measure of non-manufacturing companies’ expectations was unchanged at 84.

Consumer confidence fell in November for the first time in eight months on concern about the sustainability of the economic recovery. The benchmark Kospi stock index has declined 3.7 percent since October and the won gained 2.3 percent in the same period against the dollar. Finance Minister Yoon Jeung Hyun said yesterday the currency’s gain may hurt corporate profitability.

Asia’s fourth-largest economy expanded 2.9 percent in the third quarter, the fastest pace in seven years, as South Korea led a regional rebound with China and Singapore. Samsung Electronics Co. and Hyundai Motor Co., among the nation’s largest exporters, reported higher earnings in the quarter.

Today’s report showed an index measuring the outlook for exports dropped to 98 from 102 a month ago, and a gauge for domestic sales in December fell to 98 from 101.

The Bank of Korea surveyed the manufacturers and 801 non- manufacturers between Nov. 13 and Nov. 20.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

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China Overcapacity Wreaks Global Harm, EU Group Says

By Bloomberg News

Nov. 26 (Bloomberg) -- China’s excess industrial capacity is “wreaking far-reaching damage on the global economy,” stoking trade tensions and raising the risk of bad loans, the European Union Chamber of Commerce in China said.

A 4 trillion yuan ($586 billion) stimulus package is worsening overcapacity, especially in the steel, aluminum, cement, chemical, refining and wind-power equipment industries, according to a study by the chamber and Roland Berger Strategy Consultants, released in Beijing today.

The world’s third-biggest economy has rebounded this year on stimulus spending and a $1.3 trillion credit boom. China is adding capacity when global demand is yet to recover from the financial crisis, increasing the risk of trade frictions undermining commerce and making the threat of non-performing loans within the nation “ever larger,” the EU Chamber said.

“The Chinese stimulus package has poured credit into increasingly questionable projects,” the business group said, without identifying specific ventures. “The global impact already can be felt in the form of growing trade tensions.”

U.S. President Barack Obama and Chinese President Hu Jintao pledged this month to work to ease frictions, exacerbated by U.S. duties on Chinese tires.

The chamber recommended 30 measures to cut overcapacity, including letting an undervalued yuan gradually appreciate, reducing a “subsidy” for Chinese manufacturers.

Energy Prices

It also proposed lowering energy-price subsidies, raising interest rates to reduce easy credit, increasing dividend payments by state-owned enterprises, and spending more on health care and social security to encourage consumption and cut precautionary savings.

No comment was immediately available today from China’s commerce ministry.

In September, China’s State Council approved plans to curb expansion in industries including steel, cement, glass, coke, wind turbines and shipbuilding. The government has also introduced measures to limit land supply to sectors with excess capacity. So far, the government’s efforts have been ineffective, the chamber said.

China’s excess capacity is an “international concern” as goods that can’t be sold locally may be sent to markets that shrank because of the global slump, European Union Trade Commissioner Catherine Ashton said in Beijing Sept. 9. Ashton has since been named the EU’s top diplomat.

‘Unfounded’ Criticism

Yu Yongding, a former adviser to the Chinese central bank, said yesterday in Melbourne that that the “worrying” long-term effects of China’s expansionary policies include overcapacity, bad loans, and inefficient investment.

Not everyone agrees with the EU Chamber’s assessment. Isaac Meng, a senior economist at BNP Paribas SA in Beijing, said industries including steel and cement are not big exporters and claims of damage to the global economy are “unfounded.”

“In sectors where China is a massive exporter, like electronics, there’s no overcapacity because when exports collapse factories just close,” he added.

Increasing trade tensions between China and the U.S. are the result of high unemployment in the U.S., which is creating “political pressure to reduce China’s exports,” Meng said.

China as ‘Victim’

China’s own economy is the main “victim” of excess capacity, the chamber said. Lower profits mean companies lack cash to invest in research and development and develop more valued-added goods, it said. Businesses are also forced to cut costs, contributing to slower wage growth and less consumption, the report added.

“This is a major obstacle on the government’s path to become both an innovative and sustainable economy,” the report said.

China’s lending surge this year focused mainly on expanding production at state-owned enterprises, the report said. This led growth in fixed-asset investment by manufacturing companies to jump to 50 percent by mid-year from 25 percent in January and February, the chamber said.

Companies in industries with overcapacity will struggle to repay credit, increasing the risk of a repeat of the 1990s surge in non-performing loans, the chamber said.

China’s five largest banks have submitted plans to regulators for raising money after unprecedented lending eroded their capital, according to four people with knowledge of the matter.

It’s “particularly troubling” that more than 140 billion yuan was invested in the steel industry in the first half of this year and that 58 million tons of capacity are under construction when global demand may decline 14.9 percent in 2009, the report said. The chamber also warned of “a looming deluge” of extra cement capacity in the nation.

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net

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Black Market Signals Vietnam Dong Slump Just Starting

By Beth Thomas

Nov. 26 (Bloomberg) -- Vietnam, struggling to control accelerating inflation and a widening trade deficit, will keep weakening the dong after devaluing the currency for the first time since December, black-market rates and forwards show.

The central bank permitted the currency to decline 3.3 percent today, bringing its losses in the past year to 8.3 percent. The unofficial rate offered at gold shops in Ho Chi Minh City is 4.9 percent weaker than the spot-market price of 18,488 per dollar. Contracts based on the exchange rate in 12 months signal a 12.6 percent depreciation.

Inflation reached a six-month high of 4.35 percent in November and the nation’s balance of payments worsened as exports dropped and rising commodity prices swelled the cost of imports. The dong has slumped 24 percent in the past decade and the government risks “damaged credibility” by allowing further losses, according to Standard Chartered Plc.

“Whenever you devalue a currency, there is general expectation for more,” said Thomas Harr, a foreign-exchange strategist in Singapore at Standard Chartered, which predicts a decline to 19,000 by the end of next year. “The key challenge is the widening trade deficit and slowing inflows from foreign direct investment, remittances and equity inflows.”

The State Bank of Vietnam decided to lower the reference rate 5 percent to 17,961 against the dollar, close to yesterday’s spot rate. That was the first such move since Dec. 25. The dong’s decline was limited as policy makers also narrowed its trading range to 3 percent from the daily rate, from a 5 percent band adopted March 23.

Support for Exports

The currency, which is not fully convertible, traded at 19,450 at gold shops in the nation’s financial center, according to a state-run telephone information service. Twelve-month non- deliverable forwards, in which assets are bought and sold at current prices for future delivery, have lost 6.7 percent this month to 21,175. The contracts are settled in dollars.

A weaker dong may help to increase overseas shipments, said Dominic Scriven, a director of Ho Chi Minh City-based fund managers Dragon Capital, which has $1.6 billion under investment.

“Government attempts to address market concerns ought to be seen positively,” he said. “The move on the currency can only strengthen Vietnam’s export competitiveness.”

The devaluation “may have some impact” on the competitiveness of Thailand’s goods, the country’s Finance Minister Korn Chatikavanij said today in Bangkok.

Gold Hoarding

The trade deficit widened to $1.75 billion in November, according to preliminary figures from the General Statistics Office in Hanoi released today, compared with a revised $1.6 billion last month. Exports fell 11.4 percent in January- November, compared with the same period last year.

Vietnam’s currency is caught in a “vicious circle” between the government’s desire to boost exports and its concern that a devaluation could push more locals into holding dollars, Morgan Stanley said this month.

The dong is the second worst-performer among currencies of Asia’s 17 biggest economies in the past year, after the Kazakhstan tenge, as Vietnamese hoarded gold to protect their savings from further devaluation. The metal’s price climbed as high as 28.84 million dong ($1,560) per tael yesterday, from 18.4 million dong at the start of the year at jewelry shops in Ho Chi Minh City. One tael is about 1.2 ounces of gold.

“I just bought a load of gold to save my money since it looks like prices will go higher,” said 46-year-old Nguyen Thi Hoa, who runs a coffee shop in Hanoi’s Old Quarter. “The dong has lost its value.”

Investment Outflows

Outflows of investment are overwhelming inflows. The deficit in Vietnam’s financial account rose to $5 billion in the first half, compared with $1.6 billion for all of 2008, according to the International Monetary Fund.

The benchmark VN Index of stocks dropped 4.1 percent to 482.60 and the regulator told brokerages to halt lending for stocks. Direct foreign investment commitments fell 73 percent in the first 10 months and the central bank is forecasting a drop of as much as 20 percent in remittances from overseas Vietnamese.

“We used to have exposure to the currency but we’ve gotten out already,” said Michael Hasenstab, who oversees $45 billion in assets for San Mateo, California-based Franklin Templeton Investments. “There are questions about the economy.”

Imports and inflation have gathered pace as the government provided subsidized loans to meet its 5.2 percent economic growth target for 2009, compared with 6.2 percent expansion last year. Credit growth in the first 10 months reached 33 percent, exceeding policy makers’ 30 percent full-year target.

‘Unlikely’ to be Last

To help restore confidence, central bank Governor Nguyen Van Giau increased the benchmark interest rate yesterday by one percentage point to 8 percent.

The central bank response to the triple threat of inflation, the trade deficit and the slumping dong “is most unlikely to be the last,” Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore, wrote in a research note yesterday. He predicted an 11 percent benchmark rate by the end of 2010.

“Funding costs for corporates are on their way up so this may lead to some downward revisions in earnings outlooks,” said Mark Canizares, the head of equities at Ho Chi Minh City-based Manulife Vietnam Fund Management, which has about $280 million in assets under management.

To contact the reporter on this story: Beth Thomas in Hanoi at bthomas1@bloomberg.net.

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Taiwan Economic Slump Probably Eased on China Demand

By Janet Ong and Jay Wang

Nov. 26 (Bloomberg) -- Taiwan’s economy contracted at the slowest pace in a year in the third quarter as Chinese demand for the island’s products spurred a recovery, economists say.

Gross domestic product shrank 2.6 percent in the three months through September, according to the median estimate of 17 economists in a Bloomberg News survey, after contracting 7.54 percent in the second quarter. The government will announce the figures at about 5 p.m. in Taipei.

Signs of recovery have prompted employers to start hiring, with Taiwan’s unemployment rate falling in October for the first time in more than a year, and companies including Taiwan Semiconductor Manufacturing Corp. forecasting better sales. The benchmark Taiex index has climbed 69 percent in 2009 as investors bet the island’s economy is past the worst.

“In the third quarter, export growth was mainly due to increased orders from China,” said Ma Tieying, an economist at DBS Group Holdings Ltd. in Singapore, who forecast the economy shrank 3.2 percent. “In the current quarter, exports to the U.S. are picking up and domestic consumption and higher employment levels are signs of a recovery.”

Taiwan is dependent on a revival of overseas sales, which account for more than two-thirds of the economy, to recover from its yearlong recession. Export orders, an indication of shipments in the next one to three months, climbed in October for the first time in 13 months, led by demand from China and Hong Kong.

Stocks, Currency

Taiwan’s currency climbed 0.2 percent to NT$32.183 against the U.S. dollar as of 10 a.m. local time, according to Taipei Forex Inc. It reached a one-year high of NT$31.995 on Oct. 1. The U.S. dollar has dropped against all 16 major currencies tracked by Bloomberg this year. The benchmark Taiex index gained 0.3 percent.

President Ma Ying-jeou’s administration plans NT$858.5 ($26.6 billion) of spending over four years, or about 6 percent of GDP, on infrastructure, consumer grants and tax cuts to revive the economy. It handed out NT$82.9 billion of shopping vouchers in January, which the island’s statistics bureau says added 0.66 percentage point to GDP.

The central bank in September kept interest rates unchanged at a record-low 1.25 percent. Governor Perng Fai-nan has cut rates by 2.125 percentage points since Sept. 25, 2008.

The central bank is likely to keep interest rates unchanged this year as the risk of inflation is limited, DBS’s Ma said. She expects the central bank to increase borrowing costs in the second half of next year, once economic growth returns to pre- crisis levels.

Exports to China

Taiwan’s exports to China, its biggest overseas market, rose 10.6 percent in October from a year earlier, after increasing 2.1 percent in September. Total exports fell 4.7 percent last month, after a 12.7 percent slump in September.

Taiwan’s electronics producers send parts to China that are re-exported as finished computers, televisions and mobile phones to consumers in the U.S. and Europe.

China’s economy expanded 8.9 percent last quarter from a year earlier, the fastest pace in a year, spurring sales for Taiwan electronics makers including Quanta Computer Inc., the world’s largest maker of notebook computers.

Taiwan Semiconductor, the world’s largest custom chipmaker, reported third-quarter sales rose 21.2 percent from the previous quarter to NT$89.9 billion, boosted by overseas demand.

“Demand from the U.S. lags China as the economic recovery in the U.S. remains sluggish,” said Tony Phoo, a Taipei-based economist at Standard Chartered Plc. He forecast a 2.6 percent contraction in GDP in the third quarter.

Financial Accord

The signing of a financial accord between China and Taiwan may boost investors’ confidence as it will pave the way for increased cross-strait trade and services cooperation, Phoo said.

China and Taiwan on Nov. 16 signed three memorandums of understanding to ease access to each other’s banks, securities and insurance industries as cross-strait relations reached their warmest in 60 years.

Taiwan was struck by its deadliest storm in 50 years in August, causing NT$110 billion of damage. The statistics bureau said on Aug. 20 that Typhoon Morakot would reduce growth by between 0.6 and 0.7 percentage point in the three months ended Sept. 30 and between 0.1 and 0.2 percentage point in the fourth quarter.

To contact the reporters on this story: Janet Ong in Taipei at jong3@bloomberg.net; To contact the reporter on this story: Jay Wang in Singapore at jwang298@bloomberg.net

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Philippine Growth Unexpectedly Holds Near Decade Low

By Karl Lester M. Yap and Cecilia Yap

Nov. 26 (Bloomberg) -- Philippine economic growth unexpectedly held near a decade low last quarter as exports plunged, signaling the country hasn’t yet benefited from the global recovery.

Gross domestic product increased 0.8 percent from a year earlier, matching the revised expansion in the second quarter, the National Statistical Coordination Board said today. That compares with the 1.9 percent median forecast of 10 economists surveyed by Bloomberg. The economy grew 0.6 percent in the first quarter, the smallest gain since a recession ended in 1998.

The Philippines is lagging behind Asian nations including India and Japan where growth is accelerating after policy makers boosted public spending and cut borrowing costs to fight the global slump. That may put pressure on the central bank to keep interest rates low as a record 2009 budget deficit limits President Gloria Arroyo’s ability to boost government stimulus.

“The government doesn’t have too much fiscal room to pump prime,” said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. “Monetary policy would have to take over as the driver of GDP growth.”

Bangko Sentral ng Pilipinas, which kept its benchmark interest rate unchanged at record low of 4 percent this month, slashed borrowing costs by 2 percentage points from mid-December to July to spur domestic demand. The central bank should continue its “accommodative policy” as inflation is still low, Economic Planning Secretary Augusto Santos said today.

Growth Targets

The Philippine central bank can afford to maintain its monetary policy stance because of lower-than-expected economic growth and the “within-target” inflation outlook, Governor Amando Tetangco said in a mobile-phone text message today.

The government is maintaining its 0.8 percent-to-1.8 percent growth target for this year, as fourth-quarter economic expansion will be “much better” amid spending ahead of next year’s election, Santos said. It is also keeping its 2010 GDP growth target, Economic Planning Director Dennis Arroyo said.

Exports of goods and services by companies including Texas Instruments Inc., which account for about a third of the Philippine economy, dropped 13.6 percent in peso terms last quarter from a year earlier.

Consumer spending, which accounts for about 70 percent of the economy, rose 4 percent. Remittances from the more than 8 million Filipinos living overseas rose 6.9 percent in peso terms in the third quarter. Funds sent home from abroad account for about a 10th of the economy and help fund purchases of mobile- phones, cars and homes.

Tropical Storms

Philippine Long Distance Telephone Co., the nation’s largest company by market value, cut its 2009 revenue target this month, saying consumers may limit purchases of mobile-phone credits and Internet use to pay for repairs after tropical storms destroyed homes and damaged cars and appliances in the past two months.

The peso was little changed at 46.73 a dollar today, and the benchmark stock index climbed 0.6 percent as at 11:22 a.m. in Manila. The government is “a bit worried” about the weak U.S. currency, said Arroyo, the economic planning director.

The Philippines will maintain its 250 billion-peso ($5 billion) budget deficit ceiling for now, Santos said. That would be the biggest shortfall since Bloomberg data began in 1985.

Asian economies including China and Singapore are expanding while other nations have reported smaller declines. Malaysia said Nov. 20 that its recession eased last quarter, and neighboring Thailand’s economy contracted less than estimated in the three months through September, a report showed this week.

To contact the reporter on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net;

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Fujii Is ‘Very Closely’ Watching Yen’s Gain to 14-Year High

By Kyoko Shimodoi and Keiko Ujikane

Nov. 26 (Bloomberg) -- Japanese Finance Minister Hirohisa Fujii said the government is watching currencies “very closely” after the yen advanced to a 14-year high against the dollar, threatening the country’s export-led recovery.

“If currencies make abnormal movements, we may need to take appropriate action,” Fujii told reporters in Tokyo today. “Now we’re at the stage where we need to closely monitor movements in currency markets.”

The comments suggest Japan is closer to stepping into currency markets for the first time in more than five years as the rising yen erodes exporters’ profits in the wake of the country’s worst postwar recession. The currency’s more than 8 percent advance over the past three months has also added to Japan’s deflationary pressure by driving import costs lower.

“The possibility of intervention has apparently increased,” said Masafumi Yamamoto, Tokyo-based chief foreign- exchange strategist at Barclays Bank Plc. “Stocks have been falling and the government declared Japan is in a deflationary state. In this environment, there’s no reason for it to tolerate a higher yen.”

The yen rose to 86.91 per dollar at 9:16 a.m. in London, after climbing to 86.30, the highest since July 1995. The Nikkei 225 Stock Average slid 0.6 percent to a four-month low.

Fujii, 77, said yesterday that the dollar’s weakness is spurring the yen’s advance. Today he said “a strong U.S. dollar is in their national interest. There is no change in our support for that.”

‘Huge Risk’

Manufacturers are contemplating shifting operations abroad because the yen’s gains make it costlier to run factories at home. A stronger yen would be a “huge risk” to producing autos in Japan, Nissan Motor Co. Chief Operating Officer Toshiyuki Shiga said this month.

“There is no doubt that the yen’s strength, if it accelerates further, would affect” exporters’ profits and the economy, said Chief Cabinet Secretary Hirofumi Hirano told reporters. “We must carefully assess the impact. If that happens, the government would be asked to respond.”

Hirano said he spoke with Fujii about the currency’s surge today without discussing intervention.

Japanese authorities haven’t stepped into the currency market since the first three months of 2004, when it sold a record 14.8 trillion yen ($171 billion). Fujii had spurred some of the yen’s gains after he took office in September by saying he opposed “easy intervention.” He has since toned down his remarks by saying Japan will act if currency moves are “abnormal or disorderly.”

Fujii’s ‘Discretion’

Vice Finance Minister Yoshihiko Noda said the government isn’t considering stepping into the currency market now, Reuters reported earlier today. He later backed away from the remarks, saying at a news conference that yen policy “is under the minister’s discretion” and declining to comment on the possibility of government action.

“The chances of intervention would increase if the dollar-yen breaks below 85,” Tomoko Fujii, a foreign-exchange strategist at Bank of America-Merrill Lynch in Tokyo, wrote in a report published today. “Intervention backed by a monetary policy change is more effective than intervention without supportive monetary policy action.”

Fujii at Bank of America-Merrill Lynch said it’s unlikely that the U.S. would join Japan in stepping into foreign- exchange markets, barring a “meltdown caused by a dollar crisis.” Expectations for the Bank of Japan to add liquidity to the economy will grow should the yen’s gains “sharply” lower stock prices, hurt business sentiment and exacerbate deflation, she wrote.

Deflation’s Return

The government last week said Japan was in a “mild deflationary phase.” Price declines blighted Japan during its so-called lost decade of stagnation after an asset bubble burst in the early 1990s.

Meanwhile Finance Minister Fujii said yesterday that China’s currency is probably too weak, backing calls from the U.S. and Europe to let the yuan appreciate.

“It can’t be helped that people see the yuan as undervalued given the strength of the Chinese economy,” Fujii said in an interview in Tokyo. “The yuan is pegged to the dollar. I don’t think such a situation is necessarily good.”

The remarks are Fujii’s strongest on the Chinese currency since he took office in September, adding to concerns voiced by officials including European Central Bank President Jean-Claude Trichet this month about the yuan’s flexibility. The yuan’s peg to the dollar has sheltered China from the slide in the U.S. currency that’s making Japanese and European exports more expensive.

To contact the reporters on this story: Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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Oil Drops as Growing Supply Undermines Biggest Gain in a Week

By Grant Smith

Nov. 26 (Bloomberg) -- Oil fell in New York on speculation that its biggest advance in a week wasn’t supported by U.S. inventory levels, which rose to a four-week high.

U.S. stockpiles increased to 337.8 million barrels in the week to Nov. 20, the Energy Department said in a report yesterday. Oil still closed 2.6 percent higher as the dollar slumped to a 15-month low against the euro, stimulating demand for commodities as a currency hedge.

“On the fundamental side, it’s not justified for oil prices to go higher,” said Gerrit Zambo, a trader with Bayerische Landesbank in Munich. “Even with a cold winter there wouldn’t be any problem with supply as storage is so full and demand isn’t as high as two years ago.”

Crude oil for January delivery fell as much as $1.11, or 1.4 percent, to $76.85 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $77.13 a barrel at 10:55 a.m. London time.

Yesterday, it rose $1.94 to $77.96 a barrel. Futures have gained 73 percent this year.

There will be no floor trading in New York today because of Thanksgiving. Electronic trading will continue during the holiday.

“With the U.S. on holiday today, both the upper side and lower side should be limited,” said Ken Hasegawa, a commodity derivatives sales manager at Newedge in Tokyo. “We cannot expect further gains today.”

Dollar Index

The Dollar Index, which tracks the greenback against the currencies of six trading partners, rose 0.3 percent to 74.519 after it reached a 15-month low yesterday on speculation the U.S. will keep interest rates near zero.

The U.S. currency yesterday fell to $1.5144 against the euro, the lowest since August 2008, amid speculation the Federal Reserve will keep interest rates low. A European Commission report tomorrow may show executive and consumer confidence rose to the highest in 14 months. A weaker dollar bolsters the investment appeal of commodities.

U.S. gasoline inventories increased to 210.1 million barrels last week as imports rose and refiners boosted output, Energy Department data showed.

Distillate fuel supplies, which include heating oil and diesel, dropped for a second week to 166.9 million barrels even as consumption stagnated.

“The decline in distillate demand has narrowed a tad,” analysts at Barclays Capital, led by Paul Horsnell, said in a report after yesterday’s release of weekly Energy Department data. “It is still a bit too early to say that U.S. diesel demand has turned the corner.”

Brent crude oil for January delivery on the London-based ICE Futures Europe exchange fell as much as 89 cents, or 1.1 percent, to $77.55 a barrel. The contract traded at $77.85 a barrel at 10:47 a.m. in London. Yesterday, it rose 2.6 percent, the most since Nov. 16, to $78.44 a barrel.

To contact the reporter on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.netGrant Smith in London at gsmith52@bloomberg.net

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U.K. Banks Face ‘Toughest Bonus Rules,’ Walker Says

By Gavin Finch and Andrew MacAskill

Nov. 26 (Bloomberg) -- U.K. banks face the toughest bonus regime in the world if proposals outlined in a government- commissioned report are accepted, according to its author, Morgan Stanley & Co. Senior Adviser David Walker.

Banks should delay bonus payments for as much as five years and have the power to “claw back” awards, Walker, 69, said in his final report on improvements to U.K. corporate governance released today. The government strongly supports Walker’s recommendations “and will take steps to implement them as soon as possible,” according to a statement from Chancellor of the Exchequer Alistair Darling.

“If we implement what I propose, we have a tougher regime than is in place in any jurisdiction in the world,” Walker said in a telephone interview yesterday. Unless remuneration policies are enforced, then companies “just won’t do it,” Walker said.

The British government is seeking to assuage voter anger over bankers’ pay following more than a trillion pounds ($1.67 trillion) of publicly funded support to keep the country’s financial system afloat amid the worst financial crisis since the Great Depression. U.K. banks were concerned about the risk of publishing details on top-paid staff given that “too many countries show no sign of following suit,” the British Bankers’ Association said in a statement.

New Pay Policies

The Group of 20 leading industrial countries are reconsidering pay policies after an agreement in September to crackdown on excesses that helped trigger bank collapses. The Federal Reserve said last month that it will review practices at the 28 largest bank holding companies it regulates to ensure pay packages don’t encourage risk-taking. Germany’s financial- regulatory authority, BaFin, has asked all lenders to submit new pay policies by the end of the year.

The government asked Walker to review the link between pay and risk-taking and whether directors had done enough to prevent the decline of the financial industry.

Walker called for pay to be “balanced,” so that at least half of bonuses are awarded using long-term incentives over a three-to-five-year period, with the other half in short-term bonuses paid in three years. No more than one-third could be paid in the first year. Banks should be allowed to “claw back” payments in cases of “misstatement and misconduct,” he said.

The FSA gave U.K. banks until Nov. 2 to comply with a new remuneration code. The code stipulates that employee awards will be made up mostly of shares, rather than cash.

‘Broad Principles’

The interim report was criticized by banks and the industry’s main lobby group as overly detailed. The proposals should be “limited to broad principles” on pay, Royal Bank of Scotland Group Plc Chairman Philip Hampton wrote in an Oct. 1 submission to Walker, while the BBA said on Sept. 29 that the review should cover “broader remuneration policies.” HSBC Holdings Plc, Europe’s biggest bank, said lenders should be required to comply with the existing FSA remuneration code.

Banks should disclose the number of employees earning 1 to 2.5 million pounds, 2.5 to 5 million pounds and more than 5 million pounds in remuneration, including cash, shares and pension contributions, Walker said. The workers would not be named. That goes further than recommendations in the interim report that would have required banks to disclose only the number of employees earning more than the median compensation of board members. Walker told the British Broadcasting Corp. that he estimated 1,000 City of London financiers earn more than 1 million pounds a year.

Government to Legislate

The government today said it would legislate on publication of 1 million pound-plus pay packages, forcing disclosure for the 2010 performance year.

“If New York, Frankfurt and Paris don’t follow suit then presumably that is not such a fantastic thing for the U.K.,” said Rachel Kent, a regulatory lawyer at Lovells LLP in London.

Walker’s interim report recommended U.K. banks should delay bonus payments, increase the policing powers of risk committees and bolster the responsibilities of chairmen to avert a repeat of the financial crisis. Today’s document reiterated these plans, along with a recommendation that banks should consider annual re-election of their boards by shareholders.

“Several” non-executive directors on any bank board should commit to working 30 days to 36 days a year for the company and should be told in writing that this may limit their ability to take on boardroom roles elsewhere. When this isn’t possible, details of the time commitment agreed should be available to shareholders, the report said.

Risk Management

Banks and life insurers should create a committee to oversee the management of risk, including capital and liquidity, the report recommended. Fund managers and investors should disclose their voting record, the report said.

Walker received about 180 written submissions from institutions ranging from banks and assets managers and unions following his interim report. Prime Minister Brown said last week he will respond “swiftly” to the proposals in the report.

Walker, a former executive director at the Bank of England and ex-chairman of Morgan Stanley International, previously wrote a government-commissioned report recommending a code of conduct for British private equity firms published in 2007.

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net

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U.K. Stores Plan Fewer Discounts to Avoid Holiday ‘Armageddon’

By Sarah Shannon

Nov. 26 (Bloomberg) -- A year after swaths of panic price cuts led to a Christmas “Armageddon” for U.K. retailers, Britons may find it harder to get a bargain before the holiday.

Marks & Spencer Group Plc, New Look Group Ltd. and House of Fraser Ltd. are among stores that say they don’t plan full-scale discounting before Dec. 25. With consumer optimism holding at an 18-month high, shoppers may still spend more in December than a year ago, according to researcher Mintel International.

“I can’t see last year’s level of disorder on the high street,” New Look Finance Director Alistair Miller said in an interview with Bloomberg News. Going on sale before the holiday “is an absolutely suicidal move for retailers.”

Ninety of Britain’s 100 biggest store owners started discounting before Christmas last year as the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. caused consumers to slash their holiday budgets. In London’s main shopping district, only 40 percent of retailers are planning pre-holiday discount days this year, according to the New West End Company, the organization which represents them.

“There’s much less blanket discounts this year,” said Richard Dickinson, the organization’s chief executive officer. “Stores have been much more astute about ordering. What people are doing is much more event driven and promotion driven.”

No ‘Armageddon’

Numis Securities analyst Andy Wade expects Christmas to be “a lot stronger” for profitability as discounting subsides. Marks & Spencer’s gross margin narrowed by 1.7 percentage points in its last fiscal year after the retailer held two “Christmas Spectaculars,” one-day events in which the price of almost all products was cut by 20 percent. Those won’t be repeated this year, according to Executive Chairman Stuart Rose, who said this month that the “Armageddon” scenario of 2008 has now passed.

M&S, the U.K.’s largest clothing retailer, will “trade full price through Christmas,” Rose said. Instead of price cuts, the London-based company will rely on 1,000 new products such as a 45-pound ($75.2) Christmas dinner for four people, and a 10 million-pound advertisement campaign featuring stars from the Absolutely Fabulous television series.

House of Fraser Plc, the U.K.’s third-largest department- store chain, will only run “targeted promotions” such as 25 pounds off party-wear in the run up to Christmas, spokeswoman Clotilde Gros said. Last year, the retailer offered price cuts of as much as 50 percent before the holiday.

New Look, the owner of 610 budget fashion outlets, will run promotions on party dresses later in the holiday season and start discounting by as much as 70 percent from Dec. 26, Miller said.

‘Cut Their Cloth’

“Compared to the build up to 2008’s doom and gloom laden Christmas period, 2009 is looking much more positive,” said Jon Wright, retailing manager at market researcher Euromonitor. “Retailers have cut their cloth accordingly in terms of inventory, staffing, merchandising activities and promotion.”

Mintel forecasts that December retail sales will rise by 2 percent after declining 1.7 percent in the same month last year. The lowest interest rates on record and improving house prices have buoyed Britons willingness to spend, according to Richard Hyman, strategic retail adviser to Deloitte & Touche LLP.

“I certainly feel more confident about the economy,” said Joanne Burrows, 61, as she shopped for gifts on London’s Oxford Street. “My husband and I are feeling a bit more certain about our savings and house prices seem to have recovered a little. I’d say I’m spending more than last year.”

To date, few town center retailers have followed the lead of department-store chain Debenhams Plc, which started a 250 million-pound price cutting campaign on Nov. 18, surpassing its 200 million pounds of discounts before Christmas last year.

‘More Profitable’

John Lewis Partnership Plc, the biggest U.K. department store owner, will start its clearance on Dec. 26 at its Trafford outlet in northwest England, spokeswoman Laura Chilvers said. All other John Lewis shops will go on sale from Dec. 27.

“Christmas 2009 will be more profitable than last year thanks to a more benign competitive environment,” said Kate Calvert, an analyst at Shore Capital. Price cutting in December last year was exacerbated by closing down sales at 815 Woolworths Group Plc stores across the U.K.

Not everyone agrees that the holiday will see growth in U.K. retail sales. Verdict Research forecasts a 0.7 percent drop.

Deloitte’s Hyman expects Christmas sales to be a “whisper” up on last year, only to fall by 1.5 percent in 2010 because of a planned increase in value-added tax in January and potential rises in interest rates and unemployment.

“It’s extraordinary that retail has held up as well as it has given the recession, and it really is a testament to how wedded to spending the U.K. consumer is,” Hyman said. “You could say they are in denial.”

On Oxford Street, 37-year-old Caroline Chambers said she can afford to spend more on gifts than she did last year.

“My husband feels more secure in his job and that’s made a big difference to how we feel about spending,” Chambers said. “I’m not that worried about next year. Things are improving.”

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

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AIG Settles Greenberg Disputes, May Reimburse $150 Million Fees

By Hugh Son, Dakin Campbell and David Voreacos

Nov. 26 (Bloomberg) -- American International Group Inc., the insurer bailed out by the U.S., agreed to settle all legal disputes with former Chief Executive Officer Maurice “Hank” Greenberg and may reimburse as much as $150 million in fees.

A former U.S. judge will determine how much AIG must pay in legal expenses for Greenberg and former finance chief Howard Smith, the New York-based insurer said yesterday in a regulatory filing. AIG will return photographs, a Persian rug and other personal belongings to Greenberg, who also wins access to archival materials to write his memoirs as part of the deal.

“It was a long, really expensive fight, and AIG just basically said ‘Uncle,’” said former federal prosecutor Christopher Clark, a partner at Dewey & LeBoeuf LLP in New York who isn’t involved in the case. “I’m sure that AIG is not looking to trumpet the fact that having lost all of its claims against Greenberg, they now have to pay all of his legal fees.”

Greenberg, 84, ran AIG for almost four decades and built it into the world’s largest insurer until he was forced to retire in March 2005 amid state and federal probes into a reinsurance transaction. A tangle of lawsuits kept AIG and its former top executive in court since his departure.

AIG and Greenberg agreed that Layn R. Phillips will review legal expenses. Phillips is a partner at Irell & Manella LLP, a former judge and ex-U.S. attorney for Oklahoma, according to the firm’s Web site. AIG and two Greenberg-run investment firms agreed not to make disparaging statements about each other.

‘Significant Distraction’

“The resolution of these long-running disputes will remove a significant distraction and expense and allow AIG to better focus its efforts on paying back taxpayers,” CEO Robert Benmosche said in a statement.

Greenberg thanked Benmosche in the statement and said he looked “forward to assisting AIG in trying to preserve and restore as much value as possible for all of AIG’s stakeholders.”

Former New York Attorney General Eliot Spitzer sued Greenberg and Smith in 2005, alleging they misled regulators and investors. Spitzer dropped portions of the suit in 2006 and Greenberg asked a court to dismiss the rest. The New York suit is unaffected by this settlement, Greenberg’s lawyer David Boies said in an interview.

AIG eventually restated earnings and agreed to pay $1.64 billion to settle claims by Spitzer and other regulators, without admitting or denying wrongdoing. In court papers filed in July 2006, Greenberg argued AIG’s 2005 restatement was unnecessary and designed to force him to retire. He denied any wrongdoing in the New York civil suit.

‘Very Clear’

The insurer had sued Starr International Co., the investment firm Greenberg runs, claiming it improperly took $4.3 billion of AIG stock from an employee compensation plan. Earlier this year, a federal jury rejected those claims.

Greenberg and AIG said Aug. 31 they had agreed to binding arbitration to resolve the legal disputes, including those involving Starr. An arbitrator was to begin work by Oct. 15 and finish by March 31, according to a statement.

“The law is very clear that executives who need counsel to respond to an inquiry, an investigation, or a subpoena are entitled to full advancement and indemnification of legal fees,” Clark said.

SEC Settlement

In August, Greenberg agreed to pay $15 million to settle U.S. Securities and Exchange Commission allegations that he manipulated AIG’s earnings.

Greenberg took the top job at AIG in 1967, and eventually boosted AIG’s assets more than a thousand-fold, making $50 billion in acquisitions to reach 50 million customers in 130 countries. Under his tenure, AIG’s market capitalization grew to $166 billion, before its near-collapse amid the credit crisis.

“There has to be a recognition of the long-standing relationship that existed, and to ignore that is to disregard an important piece of history,” said Jacob Frenkel, a former SEC lawyer who specialized in fraud and stock manipulation cases. He is now with Shulman Rogers Gandal Pordy & Ecker in Potomac, Maryland.

Subprime Loans

AIG was rescued by the government last year after wrong-way bets on securities tied to U.S. subprime mortgages brought it to the brink of collapse, threatening to cause a financial-system meltdown. The insurer reported a $99 billion net loss last year.

The company has had four CEOs since Greenberg left. Martin Sullivan, who took over in 2005, was forced out in June of last year after saying losses tied to home loans would be “manageable.” Robert Willumstad was ousted when the government took over in September 2008. Edward Liddy ran the firm until August when he was replaced by Benmosche, who has said Greenberg could help the insurer.

“I want to get the benefit of his criticisms or his support,” Benmosche told Reuters in August. “The world may choose to vilify him. I think of him as having had some problems, but he can help us with the solutions.”

Liddy has said Greenberg was responsible for some of the insurer’s struggles, including the creation of the business that suffered losses on derivative trades tied to subprime mortgages.

The $182.3 billion bailout includes a $60 billion credit line, a Treasury Department investment of as much as $69.8 billion, and a $52.5 billion pledge to buy mortgage-linked assets owned or backed by the insurer. AIG agreed to turn over a majority stake to the U.S. in exchange for the rescue.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net; David Voreacos in Newark, New Jersey at dvoreacos@bloomberg.net.

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Dollar May Extend Recent Decline to 84 Yen: Technical Analysis

By Hiroko Komiya

Nov. 26 (Bloomberg) -- The dollar may extend its decline to the mid-84 yen level after sliding to a 14-year low today, Bank of Tokyo-Mitsubishi UFJ Ltd. said, citing trading patterns.

Having breached “the low end of a downward channel starting in March,” the U.S. currency has the potential to extend its losses to around 84.50 yen, said Masashi Hashimoto, a senior analyst at the unit of Japan’s biggest publicly traded bank. That would represent a 176.4 percent retracement of the greenback’s rally from a January 2005 low to a June 2007 high, he said, referring to a series of numbers known as the Fibonacci sequence.

“The dollar isn’t showing any signs it will halt its decline,” Tokyo-based Hashimoto said.

The dollar weakened to 86.56 yen as of 2:46 p.m. in Tokyo from 87.35 yesterday in New York. It earlier declined to 86.30, the lowest level since July 1995.

An ichimoku chart also shows the dollar is poised to keep sliding, Hashimoto said. The dollar remains below the bottom line of the so-called cloud, its shorter-term conversion line is lower than its longer-term baseline, and its lagging span is also beneath the current exchange-rate level, he said.

“All of these all represent dollar-selling signals,” Hashimoto said.

An ichimoku chart analyzes the midpoints of historic highs and lows. The conversion line is the same calculation over the past nine trading days. The baseline is the sum of the highest high and the lowest low over the past 26 trading days. A lagging span is the most recent closing price plotted 26 days behind the current level.

Relative Strength

The relative strength index indicates the dollar is oversold, but “oscillators don’t work when a trend is underway,” Hashimoto said. He said he pays more attention to shorter-term moving averages such as five- and 21 days. Should the dollar fall below the mid-84 yen level, 80 yen and a record low of 79.75 yen registered in April 1995 would then come into sight, he said.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net.

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Yen Rises to 14-Year High on View Authorities to Tolerate Gains

By Bo Nielsen and Yasuhiko Seki

Nov. 26 (Bloomberg) -- The yen rallied to a 14-year high against the dollar on speculation Japanese monetary authorities will tolerate further appreciation of the currency.

Finance Minister Hirohisa Fujii said today the government needs to take action on “abnormal” currency movements. Vice Finance Minister Yoshihiko Noda said the government isn’t considering stepping into the currency market, Reuters reported. The Swiss franc fell against the dollar on speculation the nation’s central bank sold the currency after it climbed to parity with the greenback for a second day.

“The Japanese authorities probably won’t step in unless we see an acceleration of the move below 85” yen per dollar, said David Deddouche, a foreign-exchange strategist in Paris at Societe Generale SA. “But traders will try to test that level in the coming days.”

Japan’s currency rose to 86.30 yen per dollar, the strongest since July 1995, before trading at 86.68 as of 10:40 a.m. in London from 87.35 yesterday in New York.

The dollar traded at $1.5085 per euro from $1.5134 yesterday, when it slid to $1.5144, the weakest since August 2008. The yen advanced to 130.76 per euro from 132.21. The franc fell 0.3 percent to 99.97 centimes per dollar.

The dollar’s decline below 87.1 yen leaves “very few supports” until the post-World War II low of 79.75 from April, 19, 1995, according to Tomoko Fujii, a foreign-exchange strategist at BofA Merrill Lynch in Tokyo.

Dollar Safety

While it slid against the yen, the dollar climbed against 14 of the 16 most-traded currencies tracked by Bloomberg after Dubai’s attempt to reschedule its debt spurred investors to seek the safety of assets perceived to be lower risk. The U.S. currency jumped 1.8 percent to 71.96 cents per New Zealand dollar.

The U.S. currency began a multiyear slide versus the yen in 1995 as a result of persistent U.S. trade deficits with Japan. The strength of the yen triggered joint purchases of greenbacks by the Bank of Japan and the Federal Reserve that year to weaken the Asian currency.

The last intervention took place on March 16, 2004 when the Bank of Japan sold 67.8 billion yen ($782 million) for dollars, according Derek Halpenny, European head of currency strategy at Bank of Tokyo-Mitsubishi UFJ Ltd.

“I am watching these movements, right now it’s time to watch them closely,” Hirohisa Fujii told reporters in Tokyo today. “We need to take appropriate action against abnormal movements.”

Recent currency moves reflect weakness in the dollar, Reuters quoted Vice Finance Minister Noda as also saying today. Chief Cabinet Secretary Hirofumi Hirano later said the government is watching currency moves closely.

‘Door Ajar’

“It is clear that the government is leaving the door ajar on the option of intervention,” Halpenny wrote. “The key justification for intervention is of course now present.”

The Swiss franc climbed to parity with the U.S. dollar yesterday for the first time in 19 months. The Swiss National Bank declined to comment on the franc’s drop today, SNB spokesman Werner Abegg said. The Bank for International Settlements also wouldn’t comment.

“Our traders are confident that the SNB was in the market to sell the franc,” said Kasper Kirkegaard, an analyst in Copenhagen at Danske Bank A/S, the Nordic region’s second- largest lender. “It fits well with the level of the franc and even more important with the pace of the decline.”

Fed officials said in minutes of their Nov. 3-4 meeting released on Nov. 24 that the dollar’s decline has been “orderly” and that they would watch for any signs that the depreciation is pushing up people’s expectations for inflation.

‘Gradual Decline’

Eisuke Sakakibara, formerly Japan’s head foreign-exchange official, said yesterday in a CNBC interview that the U.S. dollar may fall as low as 85 yen and the Japanese government might consider intervention at this amount.

Sakakibara told the financial-news channel he thought U.S. Treasury Secretary Timothy Geithner wants a “gradual decline” of the dollar to correct large trade imbalances, and wouldn’t be inclined to intervene now.

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.

Japan’s government needed to take steps to prevent a strengthening yen from damaging the country’s economy, the head of a steel industry group said.

Yen ‘Problem’

The current level of the yen was a “problem” for steel mills and their customers, Japan Iron & Steel Federation Chairman Shoji Muneoka said today at a press briefing. He is also the president of Tokyo-based Nippon Steel Corp., Japan’s largest mill.

“As long as export volumes are expanding, the most recent appreciation of the yen won’t send the Japanese economy back into a serious recession,” said Taro Saito, senior economist in Tokyo at NLI Research Institute Ltd.

Demand for the yen also increased as dollar loans remained cheaper than those in the Japanese currency.

Three-month yen London interbank offered rates, or Libor, stood at 0.301 percent yesterday, higher than the 0.256 percent rate for dollar loans, according to British Bankers’ Association data. Dollar loans became cheaper than those in yen for the first time in August.

Treasury Yields

“Recent declines in Treasury yields are also lending additional impetus for the weakness of the dollar against the yen,” said Toshiya Yamauchi, manager of the foreign-exchange margin-trading department at Ueda Harlow Ltd. in Tokyo.

Ten-year Treasury yields fell three basis points yesterday to 3.26 percent, the lowest since Oct. 9.

The euro retreated from near a 15-month high against the dollar as the European currency’s 14-day stochastic oscillator rose to 97 yesterday, above the 80 level some traders use to signal that an asset has risen too quickly and is poised to fall.

“The euro has definitely been overbought on the charts,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “This is a technical-related reason for the euro to be sold.”

Vietnam’s dong fell to a record low after the central bank devalued the currency to curb quickening inflation and a widening trade deficit. Stocks dropped and headed for the worst week since October 2008.

The State Bank of Vietnam yesterday set the reference rate for today’s trading 5.2 percent lower at 17,961 against the dollar, after the difference between spot and black-market rates widened to the most in a decade. The dong has fallen 5.4 percent this year, set for a second annual decline.

The dong declined 3.3 percent to 18,488 against the dollar as of 3:41 p.m. in Hanoi, according to data compiled by Bloomberg. It earlier traded as low as 18,500, 3 percent weaker than the reference rate.

To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

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