Yen Advances as Waning Company Earnings Stoke Demand for Refuge

By Anchalee Worrachate and Yasuhiko Seki

Feb. 20 (Bloomberg) -- The yen rose against the dollar and the euro as falling company earnings fueled concern the recession is deepening, prompting traders to buy the currency as a refuge.

The Japanese currency snapped three days of declines versus the dollar and gained the most in almost two weeks versus the euro as stocks tumbled in Asia and Europe. Anglo American Plc suspended its dividend today and said profit slumped, while Saab Automobile filed for reorganization under Swedish law. The euro fell, set for the biggest weekly decline in a month against the dollar, as European Central Bank President Jean-Claude Trichet said in Paris the 16-nation economy is in “uncharted waters.” 

“Some people are buying yen as a hedge against falling stocks,” said Neil Jones, head of hedge fund sales in London at Mizuho Corporate Bank. “There’s also a seasonal factor that supports the yen. Japan’s fiscal year is about to end soon and some companies are still repatriating money back home.”

The yen strengthened to 93.67 per dollar of 9:21 a.m. in London, from 94.20 in New York yesterday. It appreciated to 118.01 per euro, from 119.37 yesterday. The euro dropped to $1.2595, from $1.2674.
The yen is attractive in times of financial turmoil because Japan’s current-account surplus reduces the country’s reliance on overseas lenders. The currency also typically gains before end of financial year March 31 as some institutions sell foreign assets in favor of yen-denominated holdings to bolster balance sheets as they prepare to report to investors. The yen gained in every February for the past three years.

Stocks, Earnings 

Stocks dropped today, with the MSCI World Index falling for a ninth day. U.S. equity futures expiring in March slid 1.6 percent, a fifth straight decline.

Anglo American, which controls the world’s largest platinum producer, slid as much as 14 percent in London after saying it will resume dividend payments “as soon as market conditions allow.” Bridgestone Corp., the world’s biggest tiremaker, sank 7.2 percent in Tokyo to after saying 2009 profit will probably fall 71 percent. Saab Automobile filed for protection from creditors after parent General Motors Corp. said it will cut ties following two decades of losses.

The global credit crisis poses a “serious challenge” to the financial system and economic policy makers around the world, Trichet said today in a speech in Paris. The ECB will provide financial institutions with unlimited cash for as long as needed to help them through the crisis, he said.
“We have gone short euro-dollar as a trade recommendation because prospects of rising growth risks up ahead point to the need for the ECB to apply more aggressive policy steps and investor-growth expectations remain at risk of being too optimistic,” Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a note yesterday.

Europe’s manufacturing and service industries unexpectedly contracted at a record pace in February, an index based on a survey of purchasing managers by Markit Economics showed. A composite index of both industries fell to 36.2, a record low. Economists forecast an increase to 38.5, according to the median of 13 estimates in a Bloomberg survey.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
Last Updated: February 20, 2009 04:54 EST

Dollar May Rise to Four-Month High Against Yen, Citigroup Says

By Ron Harui

Feb. 20 (Bloomberg) -- The dollar may rise to a four-month high against the yen should it close above a so-called neckline at 94.65, Citigroup Inc. said, citing technical charts.

The level of 94.65 yen represents the neckline of a “very well defined double-bottom” pattern, New York-based Tom Fitzpatrick and London-based Shyam Devani wrote in a research note yesterday. A double bottom forms when a currency makes two consecutive troughs of about the same depth, and indicates a currency may rebound. The neckline passes through the highest point of the double bottom.

“The target on a close above here would be for a move to 102,” the Citigroup analysts wrote. “There are increasing signs that, contrary to popular wisdom, we may be starting a period of broad-based yen weakness that could see both dollar- yen and the yen crosses higher in the weeks ahead.” 

The dollar traded at 94.14 yen as of 10:33 a.m. in Tokyo from 94.20 yen late in New York yesterday when it reached 94.46 yen, the highest level since Jan. 6. The 102 yen level was last seen on Oct. 21. The greenback has risen 3.8 percent against the yen this year after a 19 percent decline in 2008, the most in more than two decades.

The U.S. currency also may gain versus the yen as it has “moved decisively above the 55-day moving average in recent days,” Fitzpatrick and Devani wrote. The 55-day moving average was 90.75 yen, according to data compiled by Bloomberg.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net
Last Updated: February 19, 2009 20:42 EST