Yen Rises as Stock Drop Boosts Currency’s Appeal as Safe Haven

By Stanley White and Ron Harui

Dec. 24 (Bloomberg) -- The yen rose against the euro and the dollar, snapping two days of losses, on speculation declines in stocks will increase the Japanese currency’s appeal as a haven from the credit crisis.

The dollar weakened versus the euro before government data that will probably show U.S. personal spending and durable goods orders dropped. The South Korean won rose on speculation the country’s central bank bought the currency to stem losses.

“The yen has a slightly stronger bias,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “People may interpret stock market declines as a measure of decreasing appetite for risk.”

The yen strengthened to 126.21 per euro as of 11:08 a.m. in Tokyo from 126.72 late yesterday in New York. Against the dollar, it traded at 90.38 from 90.98. The yen reached a 13-year high of 87.14 set on Dec. 17. The euro rose to $1.3967 from $1.3928. The yen may advance to 90.20 per dollar today, Shimizu said.

South Korea’s won gained 2.2 percent to 1,323.55 per dollar. The won appreciated 11 percent in December, after falling every month since July, as Korea signed swap deals with the U.S., China and Japan, giving access to dollars to help ease a funding shortage for local companies. Governments and central banks intervene by arranging purchases or sales of currencies to influence the exchange rate.

Against the Australian dollar, the yen strengthened to 61.32 from 61.90 late yesterday in New York. It also appreciated to 51.36 versus the New Zealand dollar from 51.61.

Annual Performance

The Japanese yen has gained 29 percent against the euro and 24 percent against the dollar this year as a global recession and a seizure in credit markets prompted Japanese investors to avoid riskier assets and repatriate overseas earnings. Asian banks posted writedowns and credit losses of $31 billion since the start of 2007, compared with $1 trillion worldwide.

Japan’s currency was also on course for a 60 percent surge against the Australian dollar and a 67 percent gain against the New Zealand dollar this year as the failure of investment banks and a stock market rout led investors to buy back the yen to repay loans used to fund purchases of higher-yielding assets.

The Nikkei 225 Stock Average fell 2.7 percent and the MSCI Asia-Pacific Index of regional shares excluding Japan weakened by 1.6 percent.

Personal Sending

U.S. personal spending dropped 0.7 percent last month following a 1 percent decline in October, according to a Bloomberg News survey of economists. Durable goods orders fell 3 percent in November after a 6.9 percent decrease in the previous month, according to a separate survey. Both reports are due from the government at 8:30 a.m. in Washington today.

The dollar fell to a three-month low versus the euro last week as the Federal Reserve cut the target lending rate to between zero and 0.25 percent from 1 percent and said it may keep rates low for “some time” while considering the potential benefits of buying longer-term Treasury securities.

“In the short term, we’ve found the equilibrium,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “Eventually, the European economy will have more trouble. There’s a motive to sell the euro when the New Year begins.” The dollar may rise to $1.30 per euro in the next few months, according to Galy.

For the year, the dollar strengthened 4.4 percent against the euro, 34 percent versus the British pound and 29 percent against the Australian dollar as investors sold riskier assets and repaid dollar-denominated loans.

BlackRock Fund

Japan’s currency also advanced today after Moody’s Investors Service said a BlackRock Inc. fund that invests in high-yield, high-risk loans may default.

Moody’s cut ratings on portions of BlackRock Senior Income Series III collateralized loan obligation, citing “deterioration in the market value of the underlying collateral pool,” the ratings agency said in a statement yesterday.

“Investors are still risk-averse, given there’s a global recession underway,” said Yuji Saito, head of the foreign- exchange group at Societe Generale SA in Tokyo. “The bias is for the yen to be bought.”

The yen may advance to 90 against the dollar and 126 per euro today, Saito forecast.

The International Monetary Fund’s chief economist Olivier Blanchard urged governments worldwide to enact more fiscal stimulus to avoid a “Great Depression,” according to the Le Monde newspaper yesterday. Fiscal stimulus may need to be raised to three percent “or more” of global gross domestic product and that the coming months will be “very bad” in terms of demand and consumption, he said in an interview.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netRon Harui in Singapore at rharui@bloomberg.net
Last Updated: December 23, 2008 21:42 EST