Bloomberg News

Yen Gains on Slowing U.S. Growth, Europe Safety Bets

June 03, 2012

(Corrects time reference to euro’s low against the dollar in second paragraph of story published yesterday.)

The yen rose against all of its major counterparts as concern Spain’s escalating banking crisis may spread and the slowing U.S. economic recovery boosted demand for the safest assets.

The euro fell to an 11-year low against the yen and an almost two-year low against the dollar as Spanish officials debated how to fund a bailout of Bankia group, the nation’s third largest lender. The greenback declined after a report showed the U.S. added the fewest jobs in a year last month, increasing bets the Federal Reserve may introduce further stimulus, which may debase the currency. The European Central Bank will publish its latest economic projections when it meets June 6.

“The yen certainly stood head-and-shoulders above its major counterparts, getting a boost from not only safe-haven flows but from record-low U.S. Treasury yields,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency-exchange network. “Until Europe can do something to help restore investor confidence in the region, the euro should remain on its back foot.”

The yen rose 2.8 percent to 97.01 per euro, gaining for the sixth straight week and reaching 95.60 yesterday, the strongest level since November 2000. The Japanese currency strengthened 2.1 percent against the greenback to 78.02, touching 77.66, the strongest since Feb. 14. The euro lost 0.7 percent to $1.2434 and fell as low as $1.2288, a level not seen since July 2010.

Japan’s currency typically strengthens in times of political, financial and economic turmoil because the nation’s historical trade surplus means it doesn’t have to rely on overseas lenders.

Commodities Currencies

Currencies of commodity-exporting countries dropped after China’s manufacturing grew at the weakest pace since December, fueling concern of a global growth slowdown. The Purchasing Managers’ Index fell to 50.4 in May from 53.3 in April, China’s statistics bureau and logistics federation said yesterday in Beijing.

The Mexican peso lost 2 percent to 14.3129, reaching 14.5997, the weakest since March 2009. The currency of Australia, whose biggest trading partner is China, fell 0.6 percent to 97.01 U.S. cents.

The difference, or spread, between the yield on 10-year Treasury notes and that of similar-maturity Japanese debt fell to the lowest level on record yesterday, according to data compiled by Bloomberg. The gap reached 59 basis points, or 0.59 percentage point, the narrowest since at least 1993 as the yield on the U.S. benchmark fell to a record 1.4387 percent.

‘Big Problems’

Spanish 10-year bond yields surged to 6.7 percent May 30, a level last reached in November. At the time, the European Central Bank was purchasing the bonds of Italy and Spain in an effort to allay concern of crisis contagion within the euro bloc. The central bank has bought 214 billion euros ($266 billion) in bonds since its Securities Market Program began in May 2010.

ECB President Mario Draghi told a European Union Parliament committee the central bank can’t fill the “vacuum” of the lack of fiscal prudence and governance in the euro area. Policy makers are forecast to leave the benchmark interest rate unchanged at 1 percent when they meet June 6, according to a Bloomberg survey.

“The main trend is still the downside of the euro,” said Mamoru Arai, a senior currency trader at Mizuho Financial Group Inc. (8411) in New York. “There are big problems in Spain and Greece. Fiscal austerity is very important, but economic growth is much more important.”

An index of executive and consumer sentiment among the euro member nations fell to 90.6 from a revised 92.9 in April, the lowest since October 2009, the European Commission said May 30.

Relative Strength

The 17-nation currency rose against the dollar on speculation it may have fallen too quickly. The euro’s 14-day relative strength index against the greenback remained below the 30 level, signaling an asset may reverse declines, for a ninth day yesterday, the longest such stretch since 2008.

Bets that the euro will depreciate against the dollar rose to a record in the futures market last week.

Hedge funds and other large speculators increased their bets on a euro drop for a fourth straight week in the five days ended May 29, Commodity Futures Trading Commission data showed yesterday. The difference in the number of wagers on a decline in the shared currency compared with those on a gain -- so- called net shorts -- was 203,415, the most since the euro’s inception in 1999.

‘Soft Patch’

The dollar dropped against the yen after payrolls climbed by 69,000 last month, fewer than the most-pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, the Labor Department reported yesterday. The median estimate called for a 150,000 May advance. The jobless rate rose to 8.2 percent from 8.1 percent, while hours worked declined.

“We’ve hit a soft patch in U.S. economic activity and jobs growth and this employment report just further confirms that,” said Michael Woolfolk, a managing director and senior currency strategist in New York at Bank of New York Mellon Corp. (BK:US), the world’s largest custodial bank. “What this does is raise materially the odds of quantitative easing from the Fed.”

Fed Chairman Ben S. Bernanke has pledged to keep its interest rate at a record low of zero to 0.25 percent through 2014. Additional accommodation, such as a third round of asset purchases known as quantitative easing, or QE, could become necessary if U.S. economic expansion falters, according to minutes of the central bank’s April meeting released May 16.

‘Excessive Moves’

Another report showed gross domestic product rose at a 1.9 percent annual pace in the first quarter, down from a 2.2 percent prior estimate. The number of Americans applying for unemployment insurance payments rose last week to a one-month high.

The yen pared some of its gains as concern increased the Bank of Japan (8301) would intervene to curb the currency’s advance.

Japanese Finance Minister Jun Azumi pledged to take “decisive” action on currencies after the yen climbed to its highest level since February against the dollar.

“We will continue to carefully monitor currency market moves with more caution,” Azumi told reporters in Tokyo yesterday. “If these excessive moves continue, I think I must take decisive action” on the yen, he said.

Japan has intervened to curb the yen’s 60 percent appreciation over the past decade. The currency surged to a post-World War II record of 75.35 per dollar in October before slipping 7.8 percent in the first quarter. It has since added 5 percent.

Loonie, Real

The dollar is the biggest gainer this year among 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Currency Indexes, having risen 3.2 percent. The yen has gained 1.5 percent and the euro has fallen 1.5 percent.

Canada’s dollar sank to the lowest in more than six months versus the greenback after the nation’s gross domestic product grew 0.1 percent in March, Ottawa-based Statistics Canada said, less than the median economist forecast of 0.3 percent.

The so-called loonie fell 1.1 percent to C$1.0410, touching C$1.0443 yesterday, the lowest since Nov. 28.

Brazil’s real fell the most among the 16 major currencies tracked by Bloomberg after a report showed the economy expanded 0.2 percent in the first quarter from the previous three months, compared with the 0.5 percent median forecast of economists surveyed by Bloomberg.

The real declined 2.6 percent to 2.0401 per U.S. dollar.

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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