Bloomberg News

Yen Drops Most in 3 Years as Japan Sells Currency; Euro Falls

November 01, 2011

Oct. 31 (Bloomberg) -- The yen dropped by the most in three years against the dollar as Japan stepped into foreign-exchange markets to weaken the currency for the third time this year after its gains to a postwar record threatened exporters.

The euro fell the most in four weeks versus the dollar amid speculation Europe’s leaders will struggle to garner financial support for their revamped crisis-fighting plan. The yen weakened against all of the more than 150 currencies that Bloomberg tracks. Japanese Finance Minister Jun Azumi ordered the intervention at 10:25 a.m. Tokyo time because “speculative moves” in the currency failed to reflect Japan’s economic fundamentals. The dollar rose against all its major peers.

“It appears that the intervention has been very aggressive,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The measures are only likely to provide temporary relief. In a very uncertain world demand for safe-haven currencies like the yen will remain high and it is likely to remain strong.”

The Japanese currency sank 3.2 percent to 78.24 yen per dollar at 8:47 a.m. London time, after reaching 79.53 for the biggest intraday drop since October 2008.

The yen slid 2.2 percent to 109.62 per euro and weakened 1.9 percent to 82.69 per Australian dollar. The euro fell 0.9 percent to $1.4020. Switzerland’s franc was little changed at 1.2204 per euro.

Buying Opportunity

The yen and the franc each climbed to records this year as investors sought havens from fiscal crises in the U.S. and Europe. Switzerland’s currency has weakened since Sept. 6 when the Swiss National Bank imposed a ceiling of 1.20 francs per euro and resumed purchases of foreign exchange.

Hardman said he doesn’t expect the yen to depreciate much below 80 per dollar because demand for the currency remains high and some may see today’s weakening as a buying opportunity.

Japan’s Azumi pledged to keep selling the yen in the foreign-exchange market after it climbed to a postwar record of 75.35 per dollar earlier today. Japan last intervened to weaken its currency in August, when it sold 4.51 trillion yen, the largest monthly amount since March 2004.

“I’ve repeatedly said that we’ll take bold action against speculative moves in the market,” Azumi told reporters today after the government acted unilaterally.

The yen earlier remained at 79.20 for almost three hours during Asian trading.

Large Bid

“We’re hearing in the market that there’s a very, very large bid at the 79.20 level, which is holding dollar-yen there,” said Charles Han, Hong Kong-based director of foreign- exchange trading at Newedge Financial HK Ltd. “The Bank of Japan is clearly adamant to hold dollar-yen at a certain level and make this intervention impactful.”

The yen and the Swiss franc tend to strengthen during periods of economic and financial turmoil because current- account surpluses in the nations make them less reliant on foreign capital. A stronger domestic currency hurts the overseas competitiveness of exporters and cuts the value of their overseas income when repatriated.

The euro declined against the dollar, paring last week’s gain, as traders bet a lack of detail over how the region’s rescue fund will be enlarged will overshadow plans to bolster the region’s crisis fighting tools.

Europe’s leaders agreed on Oct. 27 to increase their bailout fund to 1 trillion euros ($1.4 trillion), recapitalize banks and convinced banks to write down their holdings of Greek debt by 50 percent. While the help of China and cooperation of the International Monetary Fund were immediately sought, pledges of hard cash are proving hard to come by as Group of 20 members press for more details of the plan.

Europe Disappointment

“There’s a degree of disappointment creeping into the market about Europe’s plan,” Hardman said. “In the near term the plan might help financial market stability but it doesn’t really do much to address the fundamental problems of insolvency.”

A report today may show inflation in the 17-nation euro area moderated to 2.9 percent in October from 3 percent last month, economists said before the report. Data last week showed Europe’s services and manufacturing output contracted at the fastest pace in more than two years in October and European economic confidence dropped to the lowest since 2009.

IntercontinentalExchange Inc.’s Dollar Index, used to track the greenback against the currencies of six U.S. trading partners, strengthened 1.2 percent to 75.99 as investors sought an alternative refuge to the yen.

U.S. Recovery

The Institute for Supply Management-Chicago Inc. will say today its business barometer fell to 59.0 this month from 60.4 in September, according to the median estimate of economists surveyed by Bloomberg News. A level of 50 is the dividing line between expansion and contraction.

“Data in the U.S. is pretty benign,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “There’s no possibility the Fed is anywhere near raising rates. If anything, the rhetoric over the last week or two has been increasingly towards preparedness to do more quantitative easing, should that be required.”

The dollar has gained 3.7 percent against nine developed- nation counterparts in the last six months, according to Bloomberg Correlation-Weighted Indexes. Japan’s currency has gained 6.6 percent and the euro has fallen 2.5 percent, the indexes show.

--With assistance from Kristine Aquino in Singapore. Editors: Matthew Brown, Nicholas Reynolds

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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