Bloomberg News

Yen Falls Before U.S. Homes Data, After Bullard Comments

March 23, 2012

The yen weakened against most major peers amid speculation Japan’s central bank will boost stimulus and before a report analysts said will show U.S. new-home sales rose last month, damping demand for the currency as a haven.

The Dollar Index fell after Federal Reserve Bank of St. Louis President James Bullard said monetary policy may be at a “turning point” as the world’s largest economy strengthens. Bank of Japan (8301) Governor Masaaki Shirakawa said the central bank and the government share the same view on the economy. The euro climbed amid speculation three days of weakness was overdone.

“There was some more Japanese official comment today making reference to yen weakness and a desire to go for inflation, which is in itself a yen weakener,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London.

The yen was little changed at 82.55 per dollar at 8:04 a.m. New York time, set for a 1.2 percent gain this week, the first weekly advance in seven. It weakened 0.1 percent to 109.10 per euro. Europe’s 17-nation currency strengthened 0.2 percent to $1.3229 after dropping as much as 0.6 percent yesterday.

IntercontinentalExchange Inc.’s Dollar Index, used to track the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, slid 0.3 percent to 79.422 after touching 79.315 yesterday, the lowest level since March 9.

‘Turning Point’

In the U.S., sales of new homes probably climbed to a 325,000 annual rate in February from 321,000 the previous month, according to a Bloomberg News survey of 78 economists before today’s report. That would be the fastest since December 2010.

With Fed policy currently “on pause, it may be a good time to take stock of whether we may be at a turning point,” Bullard said in a speech in Hong Kong today. The U.S. economy may expand 3 percent this year, he said, “the outlook has improved markedly” over the past eight months.

The Fed has held its target rate at a range of zero to 0.25 percent since December 2008.

“I don’t think the trend for the dollar to gradually rise against the yen has changed,” said Koji Fukaya, chief currency strategist at Credit Suisse Group AG in Tokyo. “The U.S. economic recovery story hasn’t changed.”

Domestic Demand

The yen has weakened 1.8 percent in the past month, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar climbed 1.6 percent, while the euro advanced 0.4 percent.

Barclays Plc recommended investors bet the dollar will advance versus its Japanese counterpart. The yen may also fall versus Australia’s dollar, the yuan, rupiah and ringgit, according to a client note from Masafumi Yamamoto, chief currency strategist at Barclays in Tokyo.

Australia’s dollar may decline toward $1.0260, the least since Jan. 16, Commerzbank AG said, citing trading patterns. That marks the 50 percent Fibonacci retracement of the Aussie’s advance from 96.64 U.S. cents on Nov. 23 to $1.0856 on Feb. 29, Karen Jones, head of fixed-income, commodity and currency technical analysis in London, wrote in a note to clients.

“Beyond $1.0260 we look for losses to $1.0120, then $1,” she wrote. The Australian dollar was little changed at $1.0394 today.

Euro-Area Data

The euro snapped a three day slide against the dollar after dropping to the lowest in almost a week yesterday amid a slide in a gauge of euro-area industry based on a survey of purchasing managers.

“People were taking a slightly more sanguine view of negatives from the euro-zone PMIs and the risk environment was looking a little more encouraging,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “There was an attempt to break up through the $1.3290-$1.3295 area but that’s proved futile.”

The People’s Bank of China has strengthened the fixing of the yuan 0.5 percent since March 18, ending a five-week drop. The currency advanced 0.17 percent in the last 30 minutes of trading yesterday, prompting speculation that the monetary authority was buying yuan.

“If the policy is to boost domestic demand, ultimately the currency needs to appreciate,” said Nizam Idris , a strategist in Singapore at Macquarie Group Ltd. “An appreciating currency boosts domestic purchasing power, which would be supportive of consumption. A weak currency is only a subsidy to exporters.”

China’s Premier Wen Jiabao stressed on March 15 the need to shift to a more sustainable and efficient economic model driven by consumers and private businesses.

The yuan rose 0.2 percent this week to 6.3076 per dollar, according to the China Foreign Exchange Trade System. The central bank today set the currency’s fixing 0.2 percent stronger at a record high of 6.2891. The yuan is allowed to move as much as 0.5 percent either side of the daily fixing.

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@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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