Yen, Dollar Weaken as Asian Stock Rally Boosts Demand for Yield

By Yasuhiko Seki and Ron Harui

March 26 (Bloomberg) -- The yen and the dollar fell as Asian stocks extended a worldwide rally on speculation the worst of the global financial turmoil is over, encouraging investors to seek higher-yielding assets.

The New Zealand dollar and South Korean won strengthened the most against the yen and the greenback as the MSCI Asia Pacific index of regional stocks climbed to a two-month high. The yen also weakened on speculation Japanese reports will show retail sales and business sentiment are deteriorating, reducing demand for the currency as a refuge.

“Extreme pessimism about the global economy is receding,“ said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust and Banking Co., a unit of Japan’s seventh-largest publicly traded bank “This is making investors more active and they feel like buying riskier assets.”

The yen declined to 56.28 against the New Zealand dollar as of 7:01 a.m. in London from 55.22 late in New York yesterday. It touched 56.45, the lowest since Nov. 12. Japan’s currency dropped to 132.85 per euro from 132.48. The yen fell to 13.586 won from 13.967 won. Japan’s currency weakened to 97.94 against the dollar from 97.54.

The New Zealand dollar rose to 57.47 U.S. cents from 56.61, and the won gained to 1,330.50 per dollar from 1,363.00. The dollar traded at $1.3571 per euro from $1.3583.

Stock Rally 

The MSCI Asia Pacific Index rose 1.4 percent after the Standard & Poor’s 500 Index rallied 1 percent yesterday. The S&P 500 has gained almost 11 percent in March, set for its best performance since 1991.
The yen also weakened against all of the 16 most-active currencies today also before a trade ministry report tomorrow that economists say will show retail sales declined for a sixth straight month.

Sales fell 3 percent in February from a year earlier, after declining 2.4 percent the prior month, according to a Bloomberg News survey of economists. Consumer spending accounts for nearly 55 percent of the nation’s gross domestic product.

“Incoming data are likely to confirm the poor state of the Japanese economy,” said Hiroshi Maeba, deputy managing director of foreign-exchange trading in Tokyo at Nomura Securities Co., a unit of Japan’s biggest brokerage by assets. “The yen may be sold on weak data.”

The Bank of Japan’s Tankan index, which measures confidence among large makers of cars and electronics, slid to minus 55 this quarter from minus 24, the lowest level in more than 30 years, according to a separate Bloomberg survey before the April 1 report. A negative number means pessimists outnumber optimists.
The yen is heading for its first quarterly loss against the dollar since June, having fallen 7.5 percent.

Korean Won 

Korea’s won has strengthened 14 percent versus the dollar so far this month, leading regional gains, as concern that local banks won’t be able to service overseas debt waned. The U.S. Dollar Index traded on ICE futures in New York, which tracks the currency against those of six major trading partners, approached a two-month low.

“What’s behind the rapid gain in the won is the global dollar weakness,” said Jeff Kim, a currency dealer at Korea Exchange Bank in Seoul. “As the won fell at the fastest pace, it’s rising at that speed now.”
The Dollar Index, which track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was little changed at 83.771 today.

Demand for the euro was tempered after the Wall Street Journal reported Banque AIG, a unit of American International Group Inc., may face defaults on $234 billion of derivatives, signaling European banks may incur additional credit losses.

‘Premature’ 

“While investors seem to have taken the recent slew of economic data as signs of a sea change in the global recession, I think it is premature to judge it that way,” said Shinichi Hayashi, a currency trader at Shinkin Central Bank, Japan’s sixth-largest lender. “I wonder whether the recent flow into the euro will be sustained.”
Banque AIG employees Mauro Gabriele and James Shephard resigned in recent days and AIG must find replacements who are approved by French banking regulators to avoid facing defaults tied to clauses in the derivative contracts, the WSJ reported yesterday, citing unidentified people and an AIG document provided to the U.S. Treasury.

The global economy is still reeling after firms worldwide reported more than $1.2 trillion in credit losses and writedowns in the financial crisis.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
Last Updated: March 26, 2009 03:18 EDT