The yen strengthened as speculation Federal Reserve Chairman Ben S. Bernanke will refrain from signaling additional stimulus when he speaks today spurred demand for the safest assets.
Japan’s currency climbed for a third day versus the euro after Spanish Prime Minister Mariano Rajoy said his nation won’t seek sovereign aid until European leaders make the conditions clear. The euro weakened as Moody’s Investors Service said its review of Spain’s government debt rating will extend through September and reiterated the risk of a possible downgrade.
“The expectations of Bernanke announcing more stimulus today are fading,” said Lutz Karpowitz, a senior foreign- exchange strategist at Commerzbank AG in Frankfurt. “That creates a risk-off sentiment and that supports the yen. There’s also the news coming out of Spain which is not good.”
The yen gained 0.2 percent to 78.48 per dollar at 9:01 a.m. London time after appreciating to 78.40, the strongest since Aug. 23. Japan’s currency advanced 0.1 percent to 98.23 per euro. Europe’s shared currency was little changed at $1.2517.
Bernanke will deliver his annual speech on monetary policy at the central bank’s symposium in Jackson Hole, Wyoming, at 10 a.m. New York time today. His address in 2010 preceded a second round of quantitative easing to support growth.
“I don’t think Bernanke will make any commitment to specific policy in Jackson Hole,” said Ken Takahashi, assistant vice president of global market in New York at Sumitomo Mitsui Trust Bank Ltd. The yen is “resilient as it’s a risk-off market.”
Rajoy spoke about a second bailout after meeting with French President Francois Hollande in Madrid yesterday. Spain is considering pumping its own money into Bankia SA (BKIA) to re- capitalize the country’s biggest nationalized lender rather than use the emergency portion of a 100 billion-euro bailout from the European Union, two people with knowledge of the matter said.
Moody’s review of Spain’s credit score, which started on June 13, will probably continue through next month, the New York based ratings firm said in a statement yesterday. The company reduced Spain to its lowest investment grade level on June 13, cutting it three steps to Baa3 from A3.
“The Baa3 long term debt rating of the Spanish government remains on review for possible downgrade,” Moody’s said in the statement. The review is dependent on the scope of the nation’s bank recapitalization, support available under the European Stability Mechanism and potential changes to the region’s existing crisis-management framework, Moody’s said.
The yen has strengthened 0.6 percent this week, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro and the dollar both strengthened 0.3 percent.
The yen tends to strengthen during periods of financial turmoil because Japan’s current-account surplus means it isn’t reliant on foreign capital. The dollar benefits because it is the world’s reserve currency.
Japan’s currency held its weekly gain even after the statistics bureau said consumer prices excluding fresh food fell 0.3 percent in July from a year earlier. That compares with a 1 percent inflation goal set by the Bank of Japan (8301) in February. Industrial production unexpectedly declined in the same period, the Trade Ministry said.
U.S. factory orders climbed 2 percent last month after a 0.5 percent drop in June, according to a Bloomberg News survey before the Commerce Department report today. That would be the most since December. A separate survey predicted a final reading for the Thomson Reuters/University of Michigan confidence index will confirm the gauge rose this month to the highest since May.
The U.S. central bank has a tough decision on whether to add further stimulus to promote a stronger economic recovery, according to Atlanta Fed President Dennis Lockhart, who votes on monetary policy this year.
“It is a close call, really,” Lockhart said yesterday in a CNBC interview from Jackson Hole. “I am not overly concerned with the longer-term costs of more action, but at the same time I see limited benefit from more action.”
Many Fed policy makers said additional stimulus would probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their most recent meeting released on Aug. 22. Officials next meet on Sept. 12-13.
The Fed has already purchased $2.3 trillion of assets in two rounds of the stimulus known as quantitative easing.
“The dollar will probably rise if Bernanke dashes expectations of imminent QE3 measures,” Ralf Umlauf, a research analyst at Landesbank Hessen-Thueringen in Frankfurt, wrote in an e-mailed note to clients today.
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