Bloomberg News

Yen Rises on Growth Concern as ECB Disappoints

August 03, 2012

The yen strengthened against most of its major peers as indications of slowing global growth and concern that Europe’s debt crisis is worsening fueled demand for haven assets.

The Japanese currency headed for a sixth weekly gain against the dollar as Asian stocks fell before a report forecast to show the U.S. jobless rate held above 8 percent. Demand for the euro was limited after a European Central Bank meeting yesterday failed to deliver measures to persuade investors the region’s fiscal dilemma can be resolved. The Federal Reserve’s rate-setting committee also refrained from additional stimulus measures when it met earlier this week.

“The yen is strengthening as stocks decline,” said Kumiko Gervaise, an analyst in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency margin-trading company. “The market was disappointed by the lack of policy action from the Fed and the ECB. Today’s U.S. jobs report is important as the market is shifting its focus to economic data.”

The yen fetched 78.19 per dollar as of 6:45 a.m. in London from 78.24 yesterday, extending its weekly gain to 0.4 percent. It traded at 95.28 per euro from 95.30 yesterday, having risen 1.4 percent since July 27. The euro bought $1.2186 from $1.2180 yesterday, poised for a 1.1 percent weekly drop.

The MSCI Asia Pacific Index (MXAP) of shares fell 1.1 percent, following a 1.1 percent drop in the MSCI World Index yesterday.

Global Slowdown

U.S. nonfarm payrolls probably increased by 100,000 last month, while the unemployment rate remained unchanged at 8.2 percent, according to economists surveyed by Bloomberg News before the Labor Department publishes its monthly report today. The jobless rate has stayed above 8 percent for 41-straight months.

The Fed refrained from boosting monetary stimulus at a two- day meeting that ended on Aug. 1, while indicating a sluggish economy may prompt further steps to boost growth.

“The yen will strengthen against the dollar if the U.S. jobs data turn out weak,” said Gaitame.com’s Gervaise. “The market will start pricing in the possibility of QE3 from the Fed in September,” she said, referring to a third round of asset purchases known as quantitative easing.

Retail sales in the euro zone may have fallen 0.1 percent in June from the previous month, when they grew 0.8 percent, a survey showed before the European Union’s statistics office releases its figures today.

Best Performer

The yen tends to appreciate during periods of financial turmoil because Japan’s current-account surplus makes it less reliant on foreign capital. It has surged 5.9 percent in the past three months, the best performance among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has gained 3 percent over the same period, while the euro has lost 5.4 percent.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, may post further gains after a “bullish breakout” this week above a “congestive” resistance level at 83.01, according to Royal Bank of Canada, citing trading patterns. Resistance is an area where orders to sell may be clustered.

The advance is “underpinning topside momentum for the Dollar Index,” George Davis, chief technical analyst for fixed- income and currency strategy in Toronto at the bank’s RBC Dominion Securities unit, wrote in a research note yesterday. He cited 83.63 as the next resistance target for the index which was at 83.26 today, little changed from yesterday’s close.

Bond Purchases

Demand for the euro was limited after ECB President Mario Draghi said Germany’s Bundesbank has reservations about his plan to purchase bonds. ECB officials are working on a strategy to buy bonds in sufficient quantities to bring down borrowing costs for the region’s most indebted nations, Draghi said. Details will be released in coming weeks, he told reporters at a news conference yesterday in Frankfurt.

The yield on Spain’s 10-year debt rose 43 basis points, or 0.43 percentage point, to 7.17 percent yesterday, toward the euro-era record 7.75 percent reached on July 25. Similar- maturity Italian yields jumped 40 basis points to 6.33 percent.

“The market anticipated some form of action from the ECB this time around and was let down,” said Kikuko Takeda, senior currency economist in London at Bank of Tokyo-Mitsubishi UFJ Ltd. “Spanish and Italian bonds suffered some damage. I think the euro will continue to grind lower.”

The ECB kept its benchmark interest rate at 0.75 percent at its policy meeting yesterday, in line with the forecast of 51 of 55 analysts surveyed by Bloomberg News. Four predicted a reduction to 0.5 percent.

“What the ECB announced certainly fell well short of expectations,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. (WBC) in Sydney. “I expected markets to sell risk and I think they will continue to do so in the short term.”

-- With reporting by Hiroko Komiya in Tokyo, Mika Otsuka in New York, Kristine Aquino in Singapore. Editors: Benjamin Purvis, Rocky Swift

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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