Bloomberg News

Yen Gains Most in 2012 as Growth Concern Fuels Refuge Dem

March 24, 2012

The Japanese currency. Photographer: Tomohiro Ohsumi/Bloomberg

The Japanese currency. Photographer: Tomohiro Ohsumi/Bloomberg

The yen rose against all of its 16 major counterparts, marking the first broad-based move this year, as increased concern of slowing economic growth spurred investor appetite for safe assets.

The Japanese currency appreciated against the tenders of commodity-exporting countries, led by South Africa’s rand, after a private report showed manufacturing may shrink in China for a fifth month. A similar report in Europe helped spur a drop in the euro against the yen. Consumer confidence likely rose this month in the U.S., economists said before the report next week.

“The general risk-off tone that was popular throughout the week” supported the yen, said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “For the first time in months, Japan managed a trade surplus and that suggests that maybe the Japanese economy is in better shape than some had feared.”

The yen rose 1.3 percent to 82.35 per dollar this week in New York in its biggest such gain since the final week of 2011. The South African rand fell 2.9 percent to 10.7234 yen. The euro strengthened 0.6 percent to 109.27 yen and added 0.7 percent to $1.3270.

Implied volatility of three-month options of Group of Seven currencies, which signals traders’ expectations for price fluctuations, was 10.14 percent yesterday, according to the JPMorgan G7 Volatility Index, down from the high this year of 12.37 percent Jan. 3.

Yen Bets

Futures traders decreased their bets that the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 25,821 on March 20, compared with net shorts of 42,380 a week earlier.

The Japanese currency breached its 21-day moving average against the euro of 108.61, which will lead to further yen appreciation, with support between 105.43 and 106.8, MacNeil Curry, head of foreign-exchange and interest-rates technical strategy at Bank of America Corp. in New York, wrote in a note. Support refers to a level where buy orders may be clustered.

Signs of slower growth in the world’s second-largest economy drove investors to sell currencies of countries such as Australia, whose biggest trading partner is China.

China Slows

A preliminary reading of an index from HSBC Holdings Plc and Markit Economics released March 21 showed Chinese manufacturing may contract. The gauge fell to 48.1 in March, the lowest level in four months and compared with a final reading of 49.6 for February. Figures below 50 indicate contraction.

BHP Billiton Ltd., the world’s biggest mining company whose biggest customer is China, is re-evaluating spending plans amid slowing Chinese growth, the Australian Financial Review reported March 20, citing comments by Chairman Jacques Nasser to investors.

The Aussie lost 1.2 percent to $1.0467 and decreased 2.5 percent to 86.18 yen. It was the second worst performance among the major currencies.

“Higher-yield currencies are really sensitive to global growth prospects and that’s really been a concern with all the data that’s come out this week,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York.

European Economy

The euro slumped against the yen after a euro-area composite index based on a survey of purchasing managers in manufacturing and services dropped to 48.7 from 49.3 in February, London-based Markit Economics said in an initial estimate March 22. Economists forecast a gain to 49.6, according to the median of 21 estimates in a Bloomberg News survey. A reading below 50 indicates contraction.

The 17-nation currency gained against the dollar after Greece’s Prime Minister Lucas Papademos won approval for a 130- billion-euro ($173 billion) aid package. U.S. Treasury Secretary Timothy F. Geithner said March 21 that “Greece is making progress toward sustainability.”

The yen surged by the most since August against the dollar on March 22 after Japan reported an unexpected trade surplus for last month, adding to evidence of a rebound in the economy.

Japan’s finance ministry reported exports exceeded imports by 32.9 billion yen ($400 million) in February. Economists surveyed by Bloomberg had predicted a shortfall of 120 billion yen. Exports fell by 2.7 percent from a year earlier, less than the 6.5 percent drop projected.

Market Forces

“There’s been a lot this week that’s been supportive of the yen,” Gain Capital’s Viloria said. “Treasury yields are lower because of risk aversion, and that’s also helping the yen as a safe haven.”

The pound strengthened against most of its 16 major peers tracked by Bloomberg after U.K. data showed inflation slowed less than economist estimates in February. Consumer prices rose 3.4 percent from a year earlier, compared with the 3.3 percent median estimate of 36 economists in a Bloomberg survey.

Sterling advanced 0.2 percent to $1.5869.

IntercontinentalExchange Inc.’s Dollar Index (DXY), used to track the greenback against the currencies of six major U.S. trading partners, slid 0.6 percent to 79.313. It rose to as high as 80.738 last week as signs of strength in the U.S. economic recovery damped expectations of further Federal Reserve asset purchases, or quantitative easing.

Housing Sector

U.S. new-home sales dropped 1.6 percent to a 313,000 annual pace, the slowest since October, from a 318,000 rate in January that was weaker than previously reported, figures from the Commerce Department showed yesterday in Washington. The median estimate of 78 economists surveyed by Bloomberg News called for 325,000.

“You saw the U.S. dollar rallying on good data, which you hadn’t seen in a long time because there was so much focus on QE3 being priced out,” said David Grad, a foreign-exchange strategist at Bank of America in New York. “That intense focus on pricing out on QE3 has calmed and that’s why you’ve seen the risk-on, risk-off trade come back.

Fed Bank of St. Louis President James Bullard said monetary policy may be at a “turning point” as the world’s largest economy strengthens.

With Fed policy “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 yesterday. The U.S. economy may expand 3 percent this year, he said, adding that “the outlook has improved markedly” during the past eight months.

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

The Thomson Reuters/University of Michigan index of consumer sentiment was at 74.7 this month, up from a previous prediction of 74.3, according to the median estimate of 52 economists in a Bloomberg News survey before the March 30 report.

The dollar is up 1.2 percent in the past month against the currencies of its nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Indexes. The euro rose 0.4 percent and yen dropped 2 percent.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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


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