Bloomberg News

Yen Drops as Stock Gains, Yield Gap Curb Haven Demand

August 16, 2012

The yen slid versus all its major counterparts as Asian stocks rose and the extra yield investors receive from U.S. securities climbed to the most in four months, damping the allure of Japan’s currency.

The dollar touched a one-month high against the yen before U.S. housing data that may curtail prospects for monetary stimulus by the Federal Reserve that tends to debase the greenback. Reports due today may show new home construction remained near an almost four-year high and building permits increased. New Zealand’s dollar held gains after Fonterra Cooperative Group Ltd. said milk-powder prices rose. The Philippine peso fell to a seven-week low versus the greenback.

“When non-Japanese yields start rising, then you get more Japanese investors putting money offshore,” said Joseph Capurso, a strategist in Sydney at Commonwealth Bank of Australia. (CBA) This and low volatility are “very supportive of the yen’s weakness,” he said.

The yen fell 0.4 percent to 79.29 per dollar as of 7:15 a.m. in London after earlier touching 79.36, the weakest since July 13. It slid for a fourth day against Europe’s shared currency, dropping 0.2 percent to 97.27 per euro from 97.08 yesterday. The euro was at $1.2269 from $1.2290.

The MSCI Asia Pacific Index (MXAP) of shares climbed 0.5 percent.

Five-year U.S. government debt offered a premium of 60 basis points over its Japanese counterpart, the most since April 9. The difference between yields on two-year U.S. Treasuries and similar maturity Japanese government notes was 19 basis points, the most since July 3.

Treasury Buyers

Investors in Japan bought $10.4 billion of Treasuries in June, bringing their purchases for 2012 to $61.3 billion and total holdings of the debt to $1.1193 trillion, Treasury data released yesterday show.

That compares with China’s addition of $300 million to its portfolio of U.S. government securities for the month, raising its purchases this year to $12.4 billion and its stake in Treasuries to $1.1643 trillion. Should both countries continue buying at their respective paces through 2012, Japan will end the year with more Treasuries.

The Japanese currency has declined 0.6 percent in the past week, the worst performance among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes after the Australian dollar. The greenback gained 0.4 percent, while the euro rose 0.1 percent.

U.S. Housing

The annual pace for U.S. housing starts was probably at 756,000 in July, according to the median estimate of economists surveyed by Bloomberg News before today’s Commerce Department report. That compares with a 760,000 rate in the previous month, the fastest since October 2008. The rate for building permits may have climbed to 769,000 last month from 760,000 in June, a separate poll showed.

The U.S. central bank has held its target for overnight lending in a range of zero to 0.25 percent since 2008 and plans to keep it there at least through late 2014 to stimulate the world’s biggest economy. The Fed also bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of quantitative easing, also known as QE1 and QE2.

“The reason the U.S. dollar has been strengthening is that the data hasn’t been too bad,” CBA’s Capurso said. “The market has started to take out a little bit of pricing for QE3 in the near term.”

Dallas Fed President Richard Fisher said in a CNBC interview yesterday that the U.S. economy probably won’t lapse into recession in 2013 and that new stimulus wouldn’t spur growth.

Milk Prices

New Zealand’s currency was supported after whole-milk powder prices climbed for a second-straight time at auction, according to Auckland-based Fonterra, the world’s largest dairy exporter. The price for October delivery rose 7.3 percent an trade-weighted index on the company’s GlobalDairyTrade website showed. The company accounts for about 40 percent of the global trade in dairy products.

The New Zealand dollar bought 80.63 U.S. cents after gaining 0.2 percent to 80.71 yesterday, its biggest advance since Aug. 3.

The Philippine currency weakened a central bank report yesterday showed remittances climbed 4.2 percent in June from a year earlier, the least in 15 months. The peso lost 0.3 percent to 42.375 per dollar, the weakest since June 29, according to Tullett Prebon Plc prices showed.

To contact the reporters on this story: Sharon Chen in Singapore at schen462@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

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


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