Bloomberg News

Yen Reaches Postwar Record Versus Dollar Amid Growth Concern

August 20, 2011

Aug. 20 (Bloomberg) -- The yen reached a post-World War II high versus the dollar, gaining for a second week and spurring speculation the Bank of Japan will move to weaken the currency as concern global growth is faltering fuels demand for refuge.

The euro had the biggest weekly increase against the dollar in a month as European officials boosted efforts to curb the region’s debt crisis. The dollar dropped against the yen amid speculation Federal Reserve Chairman Ben S. Bernanke may say next week at a Jackson Hole, Wyoming, conference that added measures may be needed to support the economy. The Swiss franc fell on bets the central bank would move to weaken it.

“There seems to be more pressure for safety than anything else,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “With all these uncertainties, there’s going to be pressure on the downside for dollar-yen.”

The Japanese currency appreciated 0.2 percent to 76.55 per dollar in New York, from 76.71 on Aug. 12, touching a postwar high of 75.95 yesterday. The euro rose 1.1 percent to $1.4397, from $1.4248, and gained 0.8 percent to 110.20 yen, from 109.30. The franc fell 0.9 percent to 78.51 centimes per dollar and dropped 2 percent to 1.1303 per euro.

Global equities plunged, and gold rose to a record above $1,880 an ounce. The Standard & Poor’s 500 Index tumbled 4.7 percent in its fourth straight weekly loss, and yields on U.S. Treasury 10-, seven- and five-year notes fell to record lows.

‘Dangerously Close’

The U.S. and Europe are “dangerously close to recession,” Morgan Stanley analysts wrote in a report Aug. 18. “Recent policy errors, especially Europe’s slow and insufficient response to the sovereign crisis and the drama around lifting the U.S. debt ceiling, have weighed down on financial markets,” the report said.

The firm cut its global growth forecast to 3.9 percent this year, from 4.2 percent. Citigroup lowered its 2011 U.S. growth estimate to 1.6 percent, from 1.7 percent.

The yen has climbed beyond the level that prompted the Bank of Japan to sell it on Aug. 4 to curb its gains. A stronger yen cuts the value of overseas income at Japanese companies.

Japanese Finance Minister Yoshihiko Noda signaled early yesterday, before the yen reached the postwar record, he’s ready to make another “surprise” intervention in markets. Noda said he would “keep monitoring markets carefully.”

The yen gained 5.6 percent over the past three months, making it the second-best performer among 10 major-economy currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The franc, the biggest gainer, climbed 12 percent, while the dollar was down 1.7 percent.

Franc Drops

The franc fell 3.4 percent versus the euro and 2.3 percent against the dollar in the first two days of the week on bets the Swiss National Bank would boost its efforts to stem the currency’s strength. It pared losses after the SNB refrained from setting a target or pegging the franc to the euro.

The Swiss currency and the yen tend to gain during economic and financial turmoil because Japan’s and Switzerland’s current account surpluses makes them less reliant on foreign capital.

Speculation increased this week that U.S. regulators are stepping up scrutiny of local operations for Europe’s largest banks on concern that the sovereign debt crisis may lead to funding problems. New York Fed President William C. Dudley said the central bank always keeps an eye on the performance of U.S. and foreign banks, not monitoring one group more than the other.

Jackson Hole

Bernanke may announce policy intentions at the Kansas City Fed’s economic conference in Jackson Hole on Aug. 26, according to Marc Faber, publisher of the Gloom, Boom & Doom report, on Bloomberg Radio’s “Bloomberg Surveillance” yesterday with Ken Prewitt and Tom Keene. The Fed will extend its debt-purchasing, he said.

Last year at the event Bernanke foreshadowed a second round of bond purchases. The central bank bought $600 billion in Treasuries from November through June.

The Fed said Aug. 9 U.S. economic growth was “considerably slower” than anticipated and it’s prepared to use a range of policy tools to boost the economy. It pledged to keep interest rates near zero at least until mid-2013.

The U.S. economy grew at a 1.1 percent annual pace from April through June, lower than an initial estimate of 1.3 percent, according to the median estimate in a Bloomberg News survey before the Commerce Department reports the data Aug. 26.

The euro region’s gross domestic product expanded 0.2 percent in the second quarter, the European Union’s statistics office said. Even Germany, which has fueled growth in the region, saw its economy expand just 0.1 percent.

‘Global Slowdown’

“The global slowdown led by that in the U.S. and the European sovereign-debt crisis have been weighing on global stock markets and contributing to yen strength,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut.

The 17-nation currency gained versus the dollar as the European Central Bank continued buying government bonds to keep the sovereign-debt crisis from spreading. It said Aug. 15 it spent a record 22 billion euros ($31.7 billion) last week to purchase Italian and Spanish securities.

EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday legislation may be drafted on joint issuance of euro bonds. The concept was rejected earlier this week by Germany and France, with French President Nicolas Sarkozy calling it a final step in European integration.

Sarkozy and German Chancellor Angela Merkel said Aug. 16 they’ll instead propose measures to help strengthen the euro, including plans for all euro-area states to demonstrate a “verifiable commitment” to anchoring debt limits in national law and a euro council headed by EU President Herman van Rompuy.

--Editors: Greg Storey, Dave Liedtka

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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