Yen Falls on Speculation Stock Gains Will Revive Risk Appetite

By Yasuhiko Seki

Feb. 13 (Bloomberg) -- The yen dropped against the euro and the U.S. dollar as optimism about government efforts to revive global growth improved investors’ appetite for riskier assets, pushing up Asian stocks for the first time this week.

The yen also weakened against the Australian and New Zealand dollars after Australia’s Senate approved a A$42 billion ($28 billion) stimulus package aimed at ensuring the economy doesn’t enter its first recession in 18 years. The greenback fell for the first time in four days on speculation a U.S. report will show confidence among consumers declined in February, adding to signs the recession in the world’s largest economy is worsening.

“Risk aversion is gradually easing,” said Akio Yoshino, chief economist at Societe Generale Asset Management Ltd., citing indicators including Asian equities and the VIX volatility index, a gauge reflecting expectations for stock-market price changes index. “This should give investors less reason to buy the yen.”
The yen fell to 91.05 against the dollar at 1:02 p.m. in Tokyo from 90.94 late in New York yesterday. It slid to 117.77 per euro from 116.95 yesterday.

The Nikkei 225 Stock Average climbed 1.7 percent and the MSCI Asia-Pacific Index of regional shares rose 1.2 percent today. The VIX, a Chicago Board Options Exchange index that is used as a measure of risk aversion, fell 7.4 percent to 41.25 yesterday.

Australian Stimulus 

The Australian government will distribute A$12.7 billion in cash to families and low-income earners and spend A$28.8 billion on schools, roads, hospitals and energy efficiency. That will send the budget into deficit in the 12 months ending June 30, the first shortfall since the 2001-02 fiscal year.
The Reserve Bank of Australia last week cut the benchmark interest rate to 3.25 percent, the lowest since 1964, after the economy grew 0.1 percent in the third quarter from a month earlier, the weakest pace in eight years.

The Australian dollar rose to 59.86 yen from 59.32 yen yesterday. The New Zealand dollar advanced to 47.65 yen from 47.23 yen late in New York yesterday.
A U.S. economic stimulus bill was headed for passage in Congress after lawmakers agreed on $789 billion to stem the recession through a mix of government spending and tax cuts.
President Barack Obama’s housing plan will use government money to help reduce interest rates for struggling borrowers, while asking lawmakers to approve more ways to modify mortgages, according to a person briefed on the proposal.

“News of new home-loan aid in the U.S. also helped buoy stocks, helping ease risk-aversion,” SG’s Yoshino said.
Foreclosure filings in the U.S. surged 81 percent last year to a record 2.3 million, as home prices fell and mortgage standards tightened, according to RealtyTrac Inc. of Irvine, California, a provider of real estate data.

Weekly Loss 

The U.S. currency headed for its first weekly loss against the yen since Jan. 23 after the Labor Department said yesterday the number of Americans collecting unemployment benefits rose for a fourth consecutive week, reaching 4.81 million in the week ended Jan. 31.

The Reuters/University of Michigan preliminary index of consumer sentiment fell to 60.2 in February from 61.2 in January, according to a Bloomberg News survey of economists. The report will be released at 10 a.m. in New York.

“The report could signal a change in the consumer mind-set for the worse,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank by market value. “It would be a negative for the dollar,” which may fall to 89.80 yen and $1.2950 per euro today, he said.

G7 Meeting 

Finance ministers and central bankers from the Group of Seven major industrial nations meet in Rome today and tomorrow. They plan to discuss exchange-rate developments, a U.S. Treasury official told reporters on Feb. 11 in Washington on condition of anonymity, declining to discuss specific currencies.

“The G-7 is not likely to discuss currency-market intervention,” Itochu’s Nakajima said. “Given the relatively stable dollar, the G-7 statement is not expected to single out a specific currency.”

The euro may pare gains on speculation gross domestic product contracted 1.3 percent in the fourth quarter from the previous three months, the most since June 1995 when Bloomberg began compiling the data, according to a survey of economists. The European Union’s statistics office will release the numbers at 11 a.m. in Luxembourg.

‘Already Under Pressure’ 

“A stream of European data including the fourth-quarter GDP will be released, and downside surprises are likely to be common place,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note yesterday. “The euro is already under pressure.”

BNP Paribas forecasts the euro will decline to $1.20 and to 94 yen by the end of June.
Investors added to bets the ECB will reduce the 2 percent benchmark rate at its March 5 meeting, with the yield on the three-month Euribor interest-rate futures contract due in March falling to 1.695 percent yesterday.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
Last Updated: February 13, 2009 00:06 EST <