Yen Falls on Speculation Importers Are Selling Before Year-End

By Ron Harui and Stanley White

Dec. 2 (Bloomberg) -- The yen fell against the dollar, retreating from a five-week high, on speculation Japanese importers are buying foreign currencies before the year ends.

The yen also declined versus the euro as the Bank of Japan holds an emergency meeting to consider ways to help companies obtain funds. The Australian dollar pared declines against the greenback and the yen after the country’s central bank lowered its benchmark interest rate by 1 percentage point to 4.25 percent, a bigger cut than most economists forecast.

“Japanese importers are likely to find these levels attractive to buy dollars to meet their year-end financing needs,” said Katsunori Kitakura, chief treasury dealer in Tokyo at Chuo Mitsui Trust & Banking Co., Japan’s seventh-largest publicly listed lender. “Even though the BOJ lowered rates, that still hasn’t reduced companies’ funding costs.”

The yen fell to 93.45 per dollar as of 1:46 p.m. in Tokyo from 93.19 late yesterday in New York. It earlier rose to 92.89, the highest level since Oct. 28. Japan’s currency declined to 118.18 versus the euro from 117.52, erasing a gain to 117.24, the strongest level since Nov. 21. The euro traded at $1.2644 versus $1.2611.

Against the yen, the British pound rose 0.5 percent to 139.41 yen, the Norwegian krone advanced 0.7 percent to 13.1647 and the Canadian dollar gained 0.6 percent to 75.13.

Japan’s Economic and Fiscal Policy Minister Kaoru Yosano said today the yen’s advance is hurting exporters while saying the currency’s strength isn’t a bad thing in itself.

Australian Rates

Australia’s dollar recovered from a decline to 63.36 U.S. cents to trade little changed at 64.02 U.S. cents from late yesterday in New York. It also was at 59.83 yen, paring a decline to 59.68 yen. The Reserve Bank of Australia said economic conditions warranted the larger-than-expected rate cut and that its benchmark rate is now at a level that will stimulate growth.

The Bank of Japan today will discuss expanding the range of corporate debt it accepts from lenders to encourage them to provide credit to businesses, as the nation’s recession deepens, the central bank said yesterday.

Japan’s currency earlier gained versus the dollar on speculation declines in global manufacturing and stocks will prompt investors to buy back the yen at the expense of higher- yielding assets. The MSCI Asia-Pacific Index of regional shares slumped 3.6 percent.

“Sliding global equities are likely to increase risk aversion among investors, putting upward pressure on the yen,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Plc in Tokyo and a former Bank of Japan currency trader. “We may see the yen re-test this year’s high of 90.93 against the dollar in the near term.”

Risk Aversion

The yen touched 90.93 on Oct. 24, the highest level since August 1995.

Japan’s target rate of 0.3 percent compares with 3.25 percent in the euro zone and 4.25 percent in Australia. In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits.

“As Japan’s economy falters, risk aversion will likely rise among Japanese investors,” wrote Stephen Jen, global head of currency research at Morgan Stanley in London, in a research note yesterday. “Our year-end target for dollar-yen is 90, but this could be broken though. The yen should be bought now.”

The Institute for Supply Management said yesterday its U.S. factory index fell to 36.2 in November, the lowest level since 1982. A reading of 50 is the dividing line between expansion and contraction. Similar gauges for the euro zone and the U.K. dropped to records.

Europe’s Producer Prices

General Motors Corp., Ford Motor Co. and Chrysler LLC may need $40 billion to carry them through the current sales slowdown, almost two-thirds more than they’re seeking in U.S. aid, said Jerome York, a former GM board member, yesterday. The three carmakers are presenting plans to Congress today.

Gains in the euro may be limited before a European report today that may show producer-price grew at a slower pace in October for a fourth month, giving the central bank more scope to cut rates this week.

“The ECB is expected to lower borrowing costs,” said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo. “The euro may be sold, particularly against the yen, as the euro area’s rate gap with Japan is likely to narrow.”

Producer prices in Europe rose 7 percent in October from a year earlier, after a 7.9 percent increase in September, according to a Bloomberg survey of economists. The European Union statistics office will release the report at 11 a.m. in Luxembourg.

The difference in yield between benchmark German and Japanese government bonds was 1.56 percentage points today, compared with 1.59 percentage points on Nov. 28.

The ECB will cut its main refinancing rate by half a percentage point to 2.75 percent on Dec. 4, a separate Bloomberg survey shows.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net.

Last Updated: December 2, 2008 00:37 EST