Japan’s Yen Rises Against Euro, Dollar on U.S. Stimulus Concern

By Kim-Mai Cutler and Ron Harui

Feb. 4 (Bloomberg) -- The Japanese yen rose against the euro and the dollar as traders sought refuge in the currency amid concern the U.S. fiscal stimulus plan will meet Senate resistance and widening credit losses will erode earnings.

The euro fell toward an eight-week low against the dollar after a report showed retail sales declined more than economists forecast, supporting the case for the European Central Bank to cut its key interest rate tomorrow. The British pound weakened versus the U.S. currency as an industry report showed U.K. services shrank for a ninth month.

“There’s ongoing concern about the pace on the stimulus plan,” said Daragh Maher, deputy head of global foreign- exchange strategy in London at Calyon, the investment-banking unit of France’s Credit Agricole SA. “In that context, we’re seeing dollar-yen up as risk appetite has been short lived.” 

The dollar fell to 89.04 yen by 10:20 a.m. in London, from 89.44 yen yesterday in New York. The euro declined to 115.43 yen, from 116.63 yen. The euro fell to $1.2949, from $1.3040. It reached $1.2706 on Feb. 2, the lowest level since Dec. 5.

In the first Senate vote yesterday on amending President Barack Obama’s $885 billion plan, Democrats fell two votes short of the 60 needed to proceed on a proposal to add $25 billion in spending on highways, mass-transit programs and water projects. The vote was 58 to 39 in favor of clearing the procedural hurdle.

Pound Declines 

The pound declined against the dollar after an index based on a survey of about 700 service companies by the Chartered Institute of Purchasing and Supply fell in January. The National Institute of Economic and Social Research said today the British economy will shrink until the fourth quarter of this year.
The pound traded at $1.4397, from $1.4458 yesterday. The U.K. currency strengthened to 90.04 pence per euro, from 90.16 pence, and fell to 128.17 yen, from 129.32 yen.
“It is risky to invest in pound-denominated assets,” said Mitsuru Saito, Tokyo-based chief economist at Tokai-Tokyo Securities Co.

The Bank of England will lower its benchmark rate by a half-percentage point to a record low of 1 percent tomorrow, according to a Bloomberg survey of 61 economists.
European currencies also weakened after Kazakhstan’s central bank devalued the tenge 18 percent today, abandoning intervention to preserve its currency reserves.

Following Russia 

The nation’s currency will be kept at about 150 tenge to the dollar from Feb. 4, the Almaty-based bank said in a statement. The currency may fluctuate about 3 percent either side of that. The tenge traded at 149.94 per dollar today, down 21.4 percent from yesterday.

Kazakhstan follows Russia, Ukraine and Belarus in devaluing its currency as local banks and companies struggle to refinance debt and a recession looms.
The euro dropped as the European Union’s statistics office in Luxembourg said the region’s retail sales fell 1.6 percent in December from a year earlier. Economists in a Bloomberg survey forecast a decline of 1.4 percent.

“If traders think that the eurozone recession will be more prolonged, that’s ultimately bad news for the euro,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington.
The ECB will keep its main refinancing rate at 2 percent at a policy meeting tomorrow, according to the median forecast of 53 economists surveyed by Bloomberg. ECB President Jean-Claude Trichet said last week the next “important” meeting for policy makers will be March.

Citigroup, ABN Amro 

For ABN Amro Holding NV and Citigroup Inc., the euro’s declines against the dollar may be petering out. The dollar’s gains over the past few weeks “appears to have lost momentum,” Greg Gibbs, director of foreign-exchange strategy at ABN Amro Australia Ltd. in Sydney, wrote in a note to clients. Citigroup analysts led by New York-based Todd Elmer said yesterday the euro is “close to a bottom” versus the dollar.
The yen advanced the most against the Australian and New Zealand dollars as Centex Corp., the second-largest U.S. homebuilder by sales, reported a seventh quarterly loss yesterday after taking a $590 million writedown.

The world’s largest financial firms have announced more than $1 trillion of losses and credit-market writedowns since 2007, according to data compiled by Bloomberg.
“Risk reduction has become a key theme,” said Michiyoshi Kato, a senior vice president of currency sales at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets. “Investors are buying the yen.” 

To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.netRon Harui in Singapore at rharui@bloomberg.net;
Last Updated: February 4, 2009 05:54 EST