By Yoshiaki Nohara and Ron Harui
Jan. 27 (Bloomberg) -- The yen rose to a nine-month high versus the euro and advanced against the dollar as speculation the global economic recovery is slowing spurred demand for Japan’s currency as a refuge.
The yen strengthened against all of its 16 major counterparts before a report today forecast to show a decline in German consumer prices, signaling Europe’s largest economy is struggling to rebound. The dollar fell for a second day against the yen on prospects the Federal Reserve will maintain its pledge to keep interest rates near zero for an “extended period” at the end of its two-day policy meeting today.
“Risk aversion is strong globally, making it easy for the yen to be bought,” said Masahide Tanaka, a Tokyo-based senior strategist at Mizuho Trust & Banking Co., a unit of Japan’s second-largest lender. “The yen will remain vulnerable to ups and downs in risk sentiment.”
The yen climbed to 125.67 per euro as of 1:53 p.m. in Tokyo from 126.16 yesterday in New York. It earlier reached 125.44, the strongest since April 28. Japan’s currency gained to 89.27 per dollar from 89.65, after rising to 89.14, the strongest since Dec. 18. The euro was at $1.4077 from $1.4072.
German consumer prices, calculated using a harmonized European Union method, probably fell 0.4 percent this month after rising 0.9 percent in December, according to the median estimate of economists in a Bloomberg News survey before the Federal Statistics Office in Wiesbaden releases the data today.
Fed Outlook
The Federal Reserve will keep its key overnight rate in a range of between zero and 0.25 percent today, according to all 93 economists in a Bloomberg News survey. Futures trading in Chicago yesterday showed a 21 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, down from 26 percent odds a week ago.
“Policy makers will maintain the status quo this time,” a negative factor for the dollar, said Takako Masai, general manager of the capital markets division at Shinsei Bank Ltd. in Tokyo. “They are unlikely to change their economic outlook because U.S. economic reports haven’t been good.”
The National Association of Purchasing Management-Chicago business factory index probably fell to 57 this month from a revised 58.7 in December, according to the median estimate of 51 economists in a Bloomberg survey. The data are due on Jan. 29.
The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders.
‘Budget Stress’
Japan’s currency also gained after an official with South Korea’s Joint Chiefs of Staff said North Korea fired artillery off its west coast, sparking concern cross-border conflicts will hamper the regional economic recovery.
“The report is adding to risk aversion and causing yen buying,” said Takashi Kudo, general manager of market information service in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
Europe’s currency has weakened versus 12 of 16 major counterparts so far this month. European Central Bank executive board member Juergen Stark said yesterday in Frankfurt the lender is concerned about ballooning budget deficits in the euro region. Greece still faces a credit downgrade risk even after the nation’s 8 billion-euro ($11.3 billion) debt sale earlier this week, Moody’s Investors Service said yesterday.
“Budget stress in the euro-zone periphery will continue to weigh on the euro, even if there is some investor appetite for non-core bonds at now wider yield spreads,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “The euro still appears largely on track to test its next major support line at around $1.3750.”
Greece Debt
ECB council member Axel Weber will speak in Davos, Switzerland today, and fellow member Yves Mersch will speak in Luxembourg tomorrow.
Banks acting for Greece sold five-year securities on Jan. 25 yielding 6.2 percent. It was the nation’s first bond sale since Moody’s, Standard & Poor’s and Fitch Ratings reduced credit rankings on the country in December. Greece is inviting China to buy as much as 25 billion euros ($35 billion) of government bonds, the Financial Times reported today, citing unidentified people familiar with the matter.
The euro was at 87.27 British pence from 87.17 pence. It touched 86.51 pence on Jan. 20, the lowest since Aug. 21.
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at
ynohara1@bloomberg.net; Ron Harui in Singapore at
rharui@bloomberg.net.
Last Updated: January 27, 2010 00:17 EST
