Yen Declines Against Euro on Speculation Gains Are Excessive

By Stanley White

Sept. 10 (Bloomberg) -- The yen declined against the euro for the first time in three days on speculation its 10.5 percent advance this quarter is overdone.

The yen also fell against the dollar on speculation Japanese importers sold the currency to settle their accounts. The 15-nation euro pared losses against the dollar after oil prices rebounded from a five-month low as the Organization of Petroleum Exporting Countries agreed to reduce output to match existing quotas.

``People have been wondering when the markets were going to take a break,'' said Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo. ``A bout of risk aversion led to a massive reversal in many trades that pushed down the euro and caused the yen to rise. This move has clearly gone too far.''

The yen weakened to 151.62 per euro at 1 p.m. in Tokyo, down from a one-year high of 150.52 reached earlier and from 150.94 late yesterday in New York. It fell to 107.26 yen per dollar from 106.81. The euro trimmed early losses to trade little changed at $1.4128. It reached $1.4047 yesterday, the lowest since October 2007.

The euro's 14-day relative strength index against the yen. a comparison of the magnitude of gains and losses, was 18.75. A reading below 30 typically signals a change in price direction is imminent. The euro's RSI against the dollar was 17.60.

Crude oil for October rose 1 percent to $104.33 a barrel after OPEC agreed to lower production levels by about 520,000 barrels a day in Vienna today. The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

Lehman Brothers

Declines in the yen may be limited by speculation credit- market losses will spread, prompting investors to reduce holdings of higher-yielding assets funded with Japan's currency. Global stocks tumbled after talks between Lehman Brothers Holdings Inc. and potential investor Korea Development Bank broke down.

Lehman's shares dropped to the lowest level in a decade as a person familiar with the firm said it was continuing to negotiate with other potential investors. Lehman will announce third-quarter earnings and ``key strategic initiatives'' today, the fourth-largest U.S. securities firm said in a statement.

``The yen is likely to get a boost,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``If a name as big as Lehman is having trouble getting funding, other banks may face a similar situation. In this environment, you can't take on the risk of carry trades.''

The yen may rise to 150.70 per euro today, Soma forecast.

In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates. The risk is that currency market moves erase those profits. Japan's 0.5 percent target lending rate compares with 7 percent in Australia and 8 percent in New Zealand.

Carry Trade Victims

Jim Rogers, chairman of Singapore-based Rogers Holdings said he is buying ``victims of the carry trade'' such as the Japanese yen and the Swiss franc in an interview with Bloomberg Television. Rogers, who correctly predicted the start of the commodities rally in 1999 also said a recovery in the dollar has a ``ways to go.''

Australia's currency dropped to below 80 U.S. cents for the first time since August 2007 before trading at 80.47 cents from 81.39 cents late yesterday in Asia as the price of gold, the nation's fourth most-valuable export commodity, slid to the lowest since November. Raw materials make up 60 percent of Australia's sales overseas.

Gold futures for December delivery fell 0.7 percent to $771.50 an ounce after reaching $763.20, the lowest since October 2007.

``The decline in gold is causing a lot of problems for people who were betting on further gains,'' said Hiroshi Yoshida, foreign-exchange trader in Tokyo at Shinkin Central Bank, Japan's fifth-largest publicly traded lender by assets. ``Investors are closing out a lot of bets, and it seems that money is flowing from other currencies into the U.S. dollar.''

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net