From the International Desks

From the International Desks
On Friday, 12th June 2009





Yen falls, set for weekly loss, on stock gains, recovery signs


(Bloomberg) -- The yen declined against higher- yielding currencies, extending its weekly loss, as Asian stocks rose and China said industrial output rebounded in May, spurring demand for riskier assets.

The Swedish krona, New Zealand dollar and British pound, rose the most against the yen this week of the 16 most-traded currencies before reports today that economists said will show the decline in European industrial output slowed and U.S. consumer confidence improved. The dollar rose against 13 of the 16 most-traded currencies today after the Wall Street Journal reported the Federal Reserve will resist pressure to increase bond purchases, avoiding adding to the supply of U.S. currency.

“As expectations that the U.S. economy is bottoming out of the recession are growing, risk appetite is recovering,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “Risk money continues to fly into stocks, commodities and higher-yielding currencies, shifting away” from the dollar and the yen, he said.

The yen declined to 138.13 per euro as of 7:20 a.m. in London, from 137.74 yesterday in New York, set for a 0.2 percent decline this week. Japan’s currency fell to 98.01 per dollar from 97.63, paring its gain this week to 0.6 percent. The dollar traded at $1.4094 per euro from $1.4108, set for a 0.9 percent decline this week.

Against the yen, the pound has strengthened 3.1 percent this week, Sweden’s krona has gained 2.2 percent, Australia’s currency has added 2.2 percent and New Zealand’s dollar has appreciated 2.1 percent.

Higher Yields
Benchmark interest rates are 3 percent in Australia, 2.5 percent in New Zealand and 1 percent in the euro region, compared with 0.1 percent in Japan and as low as zero in the U.S., encouraging investors to borrow in nations with low interest rates and buy high-yielding assets elsewhere.

The dollar gained versus Australia’s currency today after the WSJ reported the Fed will probably maintain its current level of purchases of Treasuries and mortgage-backed securities when it meets in late June, resisting pressure to buy more.

The U.S. central bank may make other adjustments as it is increasingly divided over whether it should do more to quicken an economic recovery and repair the credit system or start reducing levels of credit easing to prevent inflation, the report said, without saying where it got the information.

“Investors are getting wary about the exit strategy for unconventional monetary policy by central banks and there is a guessing game about which central banks will do so first,” said Kengo Suzuki, manager of the foreign bond department in Tokyo at Mizuho Securities Co.

Strong Dollar
The U.S. currency was also boosted today on speculation Treasury Secretary Timothy Geithner will reiterate the government’s strong dollar policy at the Group of Eight meeting starting today in Italy.

“Investors cannot rule out the possibility of unexpectedly seeing some market-moving comments at the G-8 meeting, such as a reiteration of a strong dollar policy by Geithner,” Suzuki said.

The Nikkei 225 Stock Average rose 1.6 percent today to the highest level in eight months, extending this week’s gains to 3.8 percent. The MSCI Asia Pacific Index advanced 2.2 percent this week.

“With people becoming more confident about the outlook of the global economy, as evidenced by a firm stock market, money seems to be trickle down into countries which export commodity products, including Canada and Australia,” said Yoshifumi Suzuki, a Tokyo-based currency dealer at Hachijuni Bank Ltd. “People may want to bring their currencies back to levels seen before Lehman Brothers collapsed.”

Canadian Dollar
Canada’s dollar and Norway’s krone headed for weekly gains after crude oil rose above $73 a barrel yesterday for the first time in seven months.

The so-called loonie rose 1 percent this week to C$1.1077 versus the U.S. currency and Norway’s krone advanced 2.1 percent to 6.2822 per dollar. Crude oil, the two nations’ largest export earner, climbed to $73.23 a barrel yesterday.

China’s industrial production increased 8.9 percent from a year earlier, after gaining 7.3 percent in April, the government said today. Retail sales grew 15.2 percent, after climbing 14.8 percent in April, the statistics bureau said.

The International Monetary Fund raised its forecast for global growth in 2010 to 2.4 percent from 1.9 percent, a person familiar with the matter said yesterday. U.S. government reports yesterday showed retail sales increased 0.5 percent last month and initial jobless claims dropped by 24,000 last week to the lowest level since January.

Industrial Production
European industrial production fell 19.8 percent in April from a year earlier, after a record drop of 20.2 percent the previous month, according to a Bloomberg News survey of economists before the European Union’s statistics office releases the data today.

The Reuters/University of Michigan preliminary sentiment gauge for June climbed to 69.5, the highest since September, from 68.7 in May, according to a separate Bloomberg survey before today’s report.

“This issue is negative for the dollar because it weakens demand for the greenback,” said Shoichi Handa, a senior currency dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “How far the reshuffling of foreign-exchange reserves by central banks will develop will be the key to assessing the impact on the dollar.”

The dollar was also supported after Japan’s Finance Minister Kaoru Yosano said his government is confident about the outlook for U.S. Treasuries, signaling the second-biggest foreign holder of the securities will keep purchasing them.

“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Yosano said in an interview in Tokyo on June 10 before attending the G-8 meeting of finance ministers in Italy. “So our trust in U.S. Treasuries is absolutely unshakable.”