Tuesday, February 24, 2009

Yen Weakens to 12-Week Low Against Dollar as Refuge Role Wanes

By Ron Harui and Yasuhiko Seki

Feb. 24 (Bloomberg) -- The yen fell to a 12-week low against the dollar as the deterioration in Japan’s economy eroded the currency’s allure for investors fleeing the financial crisis in the U.S. and Europe.

Japan’s currency also approached the weakest level in a month versus the euro after Prime Minister Taro Aso’s approval rating slumped, according to a survey published today by Sankei newspaper, and economists forecast a report this week will show the trade deficit widened to the largest in 23 years. The dollar declined versus the euro on speculation a U.S. report today will show home prices fell at the fastest pace on record in December.

“We are going to see the yen continue to weaken regardless of what stocks do,” said Ian Stannard, a foreign-exchange strategist in London at BNP Paribas SA. “We have quite a lot of negative news coming from Japan.” The yen will trade between 97.5 and 98 per dollar “in the next few days,” Stannard said.

Japan’s currency weakened to 95.56 per dollar as of 9:10 a.m. in London from 94.61 yesterday in New York. It touched 95.44 today, the weakest level since Dec. 1. It depreciated to 121.88 per euro, from 120.10 yesterday, when it reached 121.93, the lowest since Jan. 19. The dollar traded at $1.2751 per euro from $1.2694 yesterday.

Asian currencies declined against the dollar, with the South Korean won approaching an 11-year low, after a slide in U.S. stocks spurred investors to cut holdings of emerging-market assets. The won lost 1.8 percent to 1,516.30, according to Seoul Money Brokerage Services Ltd. The Nikkei 225 Stock Average fell 1.5 percent today after the Standard & Poor’s 500 Index slipped yesterday to the lowest close since 1997.

Equity ‘Rout’

“The global rout in equities is expected to see a more supported dollar against Asian currencies,” Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore, wrote in a research note today.

The MSCI World Index fell 0.6 percent today, its 11th straight decline, as every major stock market in Europe dropped.

Japan’s trade deficit widened to 1.2 trillion yen in January, the Finance Ministry will say tomorrow, according to a Bloomberg News survey. Core consumer prices probably fell for the first time in more than a year in January, economists in a separate survey predict a government report will show Feb. 27.

The yen fell 6.3 percent against the dollar since trading at a 13-year high on Jan. 21 even as the S&P 500 lost almost 12 percent. Its decline today against the euro was the fifth in as many days, the longest stretch since September.

Losing ‘Status’

“The yen appears to be losing some of its safe-haven status,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Japan’s economic and political situation is poor.”

The correlation between the dollar-yen and the Nikkei 225 was minus 0.89 since Feb. 16 when a report showed Japan’s economy shrank at an annual 12.7 percent pace in the last quarter, the most since the 1974 oil shock. The relationship was positive 0.86 in the 12 months to Feb. 16. A reading of 1 would mean the two moved in lockstep.

“The correlation has broken down, because the drivers are now changing,” Stannard said. “Dollar-yen in particular will continue to move quite sharply higher.”

Demand for the yen as a haven also declined after U.S. financial regulators said yesterday they will begin examinations this week to determine if banks have enough capital. Citigroup Inc. and Bank of America Corp. jumped on the announcement even as the S&P 500 closed at the lowest level in 12 years.

Dollar Versus Euro

“The injection of additional capital into banks should gradually help stabilize the financial system in the U.S., which is saddled with a bad-debt problem,” said Masashi Hashimoto, a Tokyo-based foreign-exchange analyst at Bank of Tokyo Mitsubishi UFJ Ltd., an unit of Japan’s biggest banking group. “This will support the dollar” against the yen, he said.

The dollar declined against the euro and the pound amid concern reports may show the U.S. economic slump is deepening. The S&P/Case-Schiller index of house prices in 20 U.S. cities declined 18.3 percent in December from a year earlier, according to a Bloomberg News survey of economists, the most since year-on- year records began in 2001. The report is scheduled for release at 9 a.m. in Washington.

“U.S. economic data due this week may underscore the unabated decline of the housing market, which should bode ill for the dollar,” said Shinya Furue, an economist in Tokyo at Norinchukin Research Institute Ltd. “If the housing data are weak enough, the dollar may fall to between 90 yen and 92 yen.”

The dollar weakened to $1.4508 against the British pound, from $1.4487, and to 1.1607 Swiss francs, from 1.1686.

Business Confidence

The ICE’s Dollar Index, which tracks the greenback against six major trading partners including the euro and the yen, dropped 0.1 percent to 87.153. It reached 88.254 on Feb. 18, the highest level since Nov. 21.

Federal Reserve Chairman Ben S. Bernanke is scheduled to deliver his semi-annual monetary policy report before the Senate Banking Committee today and before the House Financial Services Committee tomorrow.

The euro stayed higher versus the dollar and the yen even after a German report showed business confidence declined in February, backing the case for the European Central Bank to lower interest rates. The Ifo Institute report said the business climate index, based on a survey of 7,000 executives, dropped to 82.6 this month, from 83 in January.

“Given mounting economic challenges in the eurozone and neighboring countries, the ECB is unlikely to be able to signal an end to the rate-cutting cycle,” said Yousuke Hosokawa, a senior foreign-exchange dealer at Chuo Mitsui Trust and Banking Co. in Tokyo. “This may potentially be a euro negative.”

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