Yen Falls as Stock Gains Spur Investors to Seek Higher Yields
The yen fell against 15 of the 16
most-active currencies as a rally in Asian stocks prompted
investors to purchase higher-yielding assets funded in Japan.
Japans currency dropped the most versus South Africas rand,
a favorite for so-called carry trades, after an index of U.S.
manufacturing unexpectedly gained last month, easing concern that
global economic growth will slow. The dollar rose against the yen
for a third day as the worlds biggest currency traders forecast
the Federal Reserves interest-rate cuts will help end the U.S.
currencys two-year slide.
“Gains in stocks are improving investors assessment of
risk, leading to yen selling, said Akihiro Tanaka, a senior
currency dealer in Tokyo at Resona Bank Ltd., Japans fourth-
biggest publicly traded lender by assets.
The yen declined to 158.26 per euro as of 12:24 p.m. in
Tokyo from 157.67 late in New York on Feb. 1. It was at 106.88
versus the dollar from 106.49. The currency may fall to 107.30
per dollar today, Tanaka said.
The yen slumped to three-week lows against the Australian
and New Zealand dollars. It dropped 0.7 percent to 14.5756
against the South African rand and weakened to 96.67 versus the
Australian dollar. The currency declined 0.5 percent to 210.32 to
the British pound. The MSCI Asia Pacific Index of regional stocks
rose 2.1 percent, the most since Jan. 25.
Dollar Support
Fed Chairman Ben S. Bernankes decision to lower interest
rates by 1.25 percentage points last month will end the dollars
slide, according to the biggest currency traders.
For the first time since 2003, investors are focused on
relative growth prospects rather than absolute borrowing costs,
said Geoffrey Yu, a London-based strategist with UBS AG, the No.
2 trader. The steepest cuts in rates in seven years will support
expansion in the U.S. as Europe slows, said BNP Paribas SA, the
most accurate forecaster Bloomberg tracks. The dollar will gain
at least 9 percent against the euro this year, UBS and BNP
predict.
Economists forecast the U.S. Commerce Department will say
today that factory orders increased 2.5 percent in December
compared with 1.5 percent the prior month. The Institute for
Supply Management said Feb. 1 its manufacturing index rose to
50.7 in January from 48.4 the previous month, exceeding the
dividing line between contraction and expansion.
Yen Holdings
Japans currency also fell after figures from the
Washington-based Commodity Futures Trading Commission last week
showed traders increased bets that the yen will rise. The data
are sometimes used as a contrary indicator because the reversal
of such positions can cause large currency swings.
The difference in the number of wagers by hedge funds and
other large speculators on an advance in the yen compared with
those on a drop — so-called net longs — was 52,928 on Jan. 29,
the most since February 2004, the Commissions data showed.
“Yen longs have climbed up to very high levels, said
Tomoko Fujii, head of economics and strategy for Japan at Bank of
America Corp. “With expectations of the Bank of Japans rate
hike dwindling, there is no catalyst for further yen buying.
Japans currency may move between 105 and 108 per dollar
this week, Fujii said. The likelihood the BOJ will cut its
benchmark interest rate from 0.5 percent at its next meeting on
Feb. 14-15 was 3 percent today, according to a Credit Suisse
Index based on the trading of interest-rate swaps. The odds were
zero percent immediately before the BOJs meeting ended Jan. 22.
One-month implied volatility for the yen against the dollar
declined to 11.80 percent from 12.25 percent on Feb. 1. Dealers
quote implied volatility, a gauge of expectations for currency
moves, as part of pricing options. Lower volatility may encourage
carry trades.
Technical Charts
The euro may fall to a $1.47 against the dollar this week as
its chart is set to form a so-called triple top, said Kenichiro
Fujita, manager of derivatives-marketing in Tokyo at Aozora Bank
Ltd., Japans ninth-largest publicly traded lender by assets.
A triple top forms when an exchange rate rises, falls and
then climbs back to the earlier price. The euro advanced to a
record of $1.4967 on Nov. 23, with subsequent peaks at $1.4922 on
Jan. 15 and $1.4949 on Feb. 1. The pattern indicates a currency
may decline after it has had three consecutive peaks.
“The euro looks technically weak, said Fujita. “There
are feelings of fatigue after the euro failed to break though a
record high last week.
