Sunday, March 7, 2010

Yen Falls Versus Euro as Recovery Signs Increase Yield Demand

By Yoshiaki Nohara and Ron Harui

March 8 (Bloomberg) -- The yen fell to a two-week low against the euro as signs the global economic recovery is gaining momentum boosted demand for higher-yielding assets.

The yen dropped against 15 of its 16 major counterparts after Japanese exports grew in January for a second month and before data today economists said will show German industrial output rose. Australia’s dollar touched the strongest in six weeks against the U.S. currency as risk sentiment improved after French President Nicolas Sarkozy said yesterday the euro region is ready to rescue Greece.

“We are seeing a classic reversal of the yen, having been the preeminent safe-haven currency in recent weeks,” said Ray Attrill, global research director at Forecast Ltd. in Sydney. “The U.S. dollar is generally being sold off because of an improvement in risk appetite. The yen is being sold off even more.”

Japan’s currency fell to 123.64 per euro as of 10:01 a.m. in Tokyo from 123.00 in New York on March 5. It earlier touched 123.69, the weakest since Feb. 23. The yen was at 90.39 per dollar from 90.28 after reaching 90.68, the lowest since Feb. 23. The euro rose to $1.3656 from $1.3626. Australia’s currency was at 90.87 U.S. cents from 90.77 cents after climbing to 91.06, the most since Jan. 21.

The yen dropped as Japan’s current-account surplus was 899.8 billion yen ($9.9 billion) from a year earlier, when it was in deficit, the Ministry of Finance said in Tokyo today. Exports surged 41 percent on an annual basis.

‘Risk Sentiment’

German industrial production rose 1 percent in January after falling 2.6 percent the previous month, according to a Bloomberg News survey before the Economy Ministry report today.

“Risk-taking sentiment is getting better, given some optimism over the global rebound,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “It’s an environment where the yen is likely to be sold against growth-sensitive currencies such as the Australian dollar.”

The Nikkei 225 Stock Average rose 1.5 percent, and the MSCI Asia Pacific Index of regional shares gained 1.1 percent.

The euro advanced against the dollar for a second day after Sarkozy voiced his support for Greece.

“I want to be very clear: if it were necessary, the states of the euro zone would fulfill their commitments,” he said in Paris after a meeting with Greek Prime Minister George Papandreou. “There can be no doubt in this regard.”

‘Supportive Words’

Sarkozy’s comments are among the strongest by a European Union leader to signal the bloc would bail out Greece if necessary as officials strive to warn investors against making further bets against the euro and Greek bonds. Papandreou’s government last week passed a further round of austerity measures and sold 5 billion euros ($6.8 billion) in government debt.

“The important thing is that almost everyone now agree that the Greek government has done as much as they can at this stage,” Erik F. Nielsen, chief European economist in London at Goldman Sachs Group Inc., wrote in an e-mailed note yesterday. “So, the measures were appropriately met with an avalanche of supportive words from the rest of Europe.”

Futures traders decreased bets the euro will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 66,770 on March 2, compared with net shorts of 71,623 a week earlier.

Japan’s Companies

Losses in the yen were tempered on speculation Japanese companies will bring home overseas earnings before the fiscal year ends this month.

“One source of yen buying is corporate repatriation,” Geoffrey Yu, a currency strategist in London at UBS AG, wrote in a research note dated today. “Companies with overseas earnings may be looking to repatriate the majority of their 2009 earnings for various purposes.”

Large Japanese manufacturers expected the yen to average 91.16 per dollar in the six months that started Oct. 1, 2009, according to the Bank of Japan’s quarterly Tankan survey. The currency has averaged 90.12 since the start of the Japanese fiscal second half.

Japanese companies said they remain profitable as long as the yen trades at 92.90 per dollar or weaker, according to a Cabinet Office survey on Feb. 19. That’s stronger than the 97.33 breakeven point they provided last year. Japan’s fiscal year ends on March 31.

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