Yen Weakens on Global Growth Outlook; Dollar Rises on Bernanke
April 05, 2011, 1:56 AM EDTBy Monami Yui and Ron Harui
April 5 (Bloomberg) -- The yen fell against all its major counterparts before reports that economists said will show European retail sales increased and U.S. service industries expanded, reducing demand for Japan’s currency as a refuge.
The dollar approached a six-month high versus the yen after Federal Reserve Chairman Ben S. Bernanke said inflation expectations need to be watched “extremely closely.” The euro rose toward a 10-month high against Japan’s currency on speculation the European Central Bank will raise interest rates this week while the Bank of Japan will keep them near zero.
“The worldwide economic recovery looks robust so there’s a trend for a weaker yen,” said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest bank. “Perceptions that the BOJ is lagging behind in monetary normalization is also weighing on the yen.”
The yen declined to 84.36 per dollar as of 6:42 a.m. in London from 84.06 yesterday in New York, after dropping to 84.73 on April 1, the weakest level since Sept. 24. Japan’s currency fell to 119.76 per euro from 119.54 yesterday, when it depreciated to 120.06, the lowest since May 10. The euro was at $1.4203 from $1.4221.
Euro-region retail sales rose 0.1 percent in February from January, when they gained 0.2 percent, according to a Bloomberg survey before today’s report. The U.S. Institute for Supply Management’s index of non-manufacturing businesses was 59.5 in March after a 59.7 reading the previous month that was the highest since August 2005, a separate survey showed ahead of today’s data. A reading above 50 signals growth.
Dollar Index
The Dollar Index gained for a second day after Bernanke said he expected an increase in commodity prices to create a “transitory” boost in U.S. inflation and the central bank would act if he’s proven incorrect.
The Fed will today release minutes of its March 15 meeting where policy makers said the U.S. economic recovery “is on a firmer footing.”
“Bernanke said the Fed needs to watch inflation, so the dollar is higher,” said Lee Wai Tuck, a foreign-exchange strategist at Forecast Pte in Singapore. “He may be turning slightly more hawkish.”
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, advanced 0.1 percent to 76.008.
Yen’s Decline
Japan’s currency weakened 3.4 percent in the past month, the biggest decline among the 10 most-widely traded currencies tracked by Bloomberg Correlation-Weighted Indexes.
The BOJ is considering offering temporary loans to banks to aid companies with cash-flow shortages in the wake of the March 11 earthquake, people familiar with the matter said. The plan may be presented to the BOJ board as early as this month, the people said, speaking on condition of anonymity because the discussions weren’t public.
Japan’s government said last month the direct damage from the disaster may reach 25 trillion yen ($296 billion), about 5 percent of gross domestic product. The central bank will keep its target rate on hold in a range of zero to 0.1 percent on April 7, a Bloomberg survey showed.
“The Fed will be catching up with the ECB in raising interest rates, while the BOJ is heading in the opposite direction,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender. “I don’t see any reason to buy the yen.”
Aussie Falls
Australia’s dollar fell for a second day after central bank Governor Governor Glenn Stevens left interest rates unchanged and a government report showed the country unexpectedly recorded a trade deficit.
The Australian currency weakened versus 15 of its 16 major counterparts after the statistics bureau said the deficit was A$205 million ($212 million) in February. Economists surveyed by Bloomberg predicted a surplus of A$1.2 billion.
“The RBA statement is consistent with inaction for some period of time, and there’s nothing new in the statement that would push the Aussie higher,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. The Australian currency “is now going to be disproportionately impacted by downside data surprises, given the market is extremely long Aussie.”
The so-called Aussie declined 0.3 percent to $1.0329 from yesterday, when it rose to $1.0417, the strongest level since it began trading freely in 1983.
-- With assistance from Mayumi Otsuma and Masahiro Hidaka in Tokyo and Candice Zachariahs in Sydney. Editors: Jonathan Annells, Nicholas Reynolds
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
