Bloomberg News

Yen Gains Most Since May on Weakness Warning; Rand Drops

January 15, 2013

The yen rose the most since May versus the dollar as Japanese Economy Minister Akira Amari said an excessively weak currency may hurt imports and households, damping bets policy makers will try to push it down further.

Japan’s currency gained for the first time in five days against the dollar on bets its drop to the weakest level since June 2010 was excessive. The Swiss franc slid to a 13-month low versus the euro as signs Europe’s debt crisis is easing cut demand for the currency as a haven. South Africa’s rand fell after Anglo American Platinum Ltd. (AMS) said it will cut output.

“Amari’s comments introduced the possibility that the government may be a bit concerned about the pace of the decline of the yen,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut. “A signal coming from Japanese officials that maybe the yen is weakening too quickly is something that might give the market a bit of pause.”

The yen climbed 0.9 percent to 88.65 per dollar at 12:58 p.m. in New York and rallied as much as 1.3 percent, the biggest intraday jump since May 17. It slid to 89.67 yesterday, the weakest level since June 25, 2010. Japan’s currency gained 1.3 percent to 118.23 per euro. The dollar advanced 0.3 percent to $1.3336 per euro.

Norway’s krone and South Africa’s rand were the biggest losers among the greenback’s 16 most-traded counterparts.

Rate Decision

The krone fell after central bank Deputy Governor Jan F. Qvigstad signaled a persistent strength in the currency would influence the bank’s next rate decision in March. It declined 1.2 percent to 5.5682 per dollar.

The rand weakened after Anglo American Platinum said it will shut four shafts, putting 14,000 jobs at risk and fueling concern South Africa’s current-account deficit will widen. The currency dropped 1.4 percent to 8.8144 per dollar and touched 8.8242, the lowest since Dec. 4. Metals and other minerals accounted for 61 percent of South Africa’s exports in the first 11 months of 2012, according to government data.

The Swiss franc depreciated past 1.24 per euro for the first time since Dec. 7, 2011, as haven demand ebbed. European Central Bank President Mario Draghi said Jan. 10 the euro-area economy will slowly return to health in 2013. The currency fell 0.4 percent to 1.2389 per euro and reached 1.2413.

Premium Climbs

The premium for three-month options granting the right to sell the franc versus the euro relative to those allowing for purchases surged to the most since at least 2003, as far back as Bloomberg tracks the data. The so-called risk reversal rate rose to as much as a 2.12 percentage-point premium for franc puts, from 1.78 yesterday and 0.87 a month ago. A put option gives the right, but not the obligation, to sell a currency.

The yen snapped a four-day losing streak, the longest since November.

“The market is massively short yen because investors are convinced it will weaken further on the back of the government’s policy,” said Michael Derks, chief strategist at FxPro Financial Services Ltd. in London. “When positions are that extreme, a comment like that from Amari can really swing the market.” A short position is a bet an asset will decline.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen versus those on a gain, known as net shorts, was 74,096 on Jan. 8, figures from the Washington-based Commodity Futures Trading Commission show. Net shorts totaled 30,447 on Nov. 16.

Campaign’s Limits

Amari said Japan faces risks from any decline too far in the yen, highlighting the limits on Prime Minister Shinzo Abe’s campaign to drive down the currency.

“If the yen excessively weakens, this would cause a spike in import prices,” even as it helps exporters, Amari told reporters in Tokyo.

The Bank of Japan (8301) will review its 1 percent inflation goal at its policy meeting on Jan. 21-22. Abe has called for the target to be doubled.

Goldman Sachs Asset Management Chairman Jim O’Neill said the Bank of Japan must show it’s serious about inflation targeting for the yen to weaken further.

“Classical indicators suggest it is oversold,” O’Neill said in an interview on “Bloomberg Surveillance” from London. The BOJ “has got to show its going to take this 2 percent inflation target seriously. Rather than just a goal, it has to be a target,” he said.

The yen slid 16 percent over the past six months, the most among the 10 developed-market currencies tracked by Bloomberg Correlation Weighted Indexes, as Abe was swept to power. The dollar fell 4.7 percent, and the euro rose 4.7 percent.

Debt Ceiling

The dollar rose versus most major peers as investors sought safety amid bets a political showdown over the U.S. debt limit will hurt the economy. The limit was reached Dec. 31, and Treasury Secretary Timothy F. Geithner said yesterday measures he’s taking to avoid breaching it won’t work past each March.

Geithner warned of severe economic hardship should Congress fail to raise the ceiling, which lawmakers have increased or revised 79 times since 1960. President Barack Obama told Republicans in Congress not to use the need for an increase in the $16.4 trillion limit to force through new spending cuts.

Fitch ratings said today a failure of U.S. lawmakers to raise the debt ceiling would prompt a “formal review” of the U.S.’s AAA credit rating.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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


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