Yen Gains on Concern Global Growth Will Slow; Krona Falls
Tuesday, 10 April 2012 | 14:30
The yen strengthened after Fed Chairman Ben S. Bernanke said the U.S. recovery is far from complete, spurring demand for the safest assets as concern deepened that the global economy may be faltering.
Japan’s currency advanced at least 0.4 percent against all 16 of its major peers after the Bank of Japan (8301) refrained from easing monetary policy. The euro fell to the lowest in a month against the yen before France and Italy auction debt this week amid concern the region’s debt crisis is spreading. Sweden’s krona weakened against the euro, dollar and yen after a report showed the nation’s industrial production unexpectedly plunged in February.
“Our view is that the yen will remain strong,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “The market is having a reality check about global growth and there’s potential for another round of financial instability. There were some expectations that the BOJ could have eased policy today, which were disappointed.”
Japan’s currency rose 0.3 percent to 81.22 per dollar at 11:03 a.m. London time after falling 0.5 percent before the BOJ announcement. The yen was 0.6 percent stronger at 106.13 against the euro, which declined 0.3 percent to $1.3065.
Sweden’s krona depreciated 0.4 percent to 6.7818 per dollar and declined 0.2 percent to 8.8691 per euro. Switzerland’s franc was little changed at 1.2026 per euro after strengthening above the Swiss National Bank’s cap of 1.20 to the common currency for the second time in three days yesterday.
The U.S. economy “is still far from having fully recovered” from the financial crisis more than three years ago, Bernanke said at a conference in Stone Mountain, Georgia, yesterday. Speeches are scheduled today from Dallas Fed President Richard Fisher, Atlanta Fed President Dennis Lockhart and Minneapolis Fed President Narayana Kocherlakota.
The Stoxx Europe 600 Index of shares fell 0.9 percent, while German two- and five-year note yields dropped to records.
The BOJ kept its key rate between zero and 0.1 percent and left unchanged its 30 trillion-yen asset-purchase fund. No board member proposed additional easing at the two-day meeting concluded today, the central bank said.
The yen has weakened 4.5 percent against the dollar since the Bank of Japan set a 1 percent inflation goal on Feb. 14 and increased its planned purchases of government bonds.
Euro to Fall
The euro has depreciated 0.5 percent over the past week, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar has advanced 0.9 percent and the yen has added 3.1 percent.
Should the euro break below the $1.2590 to $1.3005 support level, which is the currency’s February low, it may fall to $1.2590, Societe Generale SA analysts Hugues Naka and Fabien Manac’h wrote in a research note today citing trading patterns. Support refers to an area on a price graph where buy orders may be clustered.
France is scheduled to auction a total of 7.8 billion euros of bills today. Italy will sell 11 billion euros of bills tomorrow, followed by an offering of debt maturing from 2015 to 2023.
Spain’s 10-year yields jumped 43 basis points last week, the biggest surge since the period ended Jan. 6, as Prime Minister Mariano Rajoy said the nation is in “extreme difficulty.” The euro region’s fourth-largest economy attracted fewer bids relative to the amount offered at its April 4 debt sale, rekindling concern Europe’s crisis will continue.
“If the results of the Italian auctions are as bad as the Spanish sales last week, it may trigger selling in the euro,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “The markets would think weak demand means the risk of contagion is increasing.”
Sweden’s industrial production fell an annual 7.1 percent in February, data showed today. It was estimated to grow 0.5 percent, according to the median forecast in a Bloomberg survey of economists. Output fell a monthly 5.2 percent, compared with a predicted 0.3 percent contraction.
Government data last week showed that U.S. nonfarm payrolls increased by 120,000 in March, the smallest amount in five months. The number fell short of the most pessimistic forecasts in a Bloomberg News survey of economists.
The Fed has pledged to keep its benchmark rate at a record low range of zero to 0.25 percent through at least late 2014. It will hold off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its target, according to minutes of the U.S. central bank’s March 13 meeting released last week.
“There are expectations the Fed will take more steps,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “Any indication by the Fed for additional easing will lead to dollar selling.”
The U.S. central bank bought $2.3 trillion of assets to support the economy in two rounds of quantitative easing from December 2008 to June 2011 to stimulate the economy through lower borrowing costs.