Yen Heads for Fourth Weekly Loss on Bets Banking Crisis Ebbing

By Ye Xie and Oliver Biggadike

March 13 (Bloomberg) -- The yen fell against most of its major counterparts and headed for a fourth weekly decline versus the euro on speculation the worst of the banking crisis may be over, reducing demand for Japan’s currency as a refuge.

The Swiss franc was poised for its largest weekly loss against the euro since 1999 after the Swiss National Bank started selling the currency yesterday to stem its appreciation. The dollar dropped against the euro this week on reduced demand for the world’s reserve currency after financial firms including Bank of America Corp. said they have become profitable.

“The talk of gloom and doom starts to dissipate after the banks said they are still making money,” said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. “People sitting on a lot of long-yen positions will start to square up. When risk aversion dies down a bit, the dollar-yen moves up aggressively.” A long position is a bet that a currency will appreciate.

The yen declined 0.3 percent to 126.52 versus the euro at 12:43 p.m. in New York, from 126.16 yesterday. It earlier touched 127.64, the weakest level since Jan. 7. Japan’s currency lost 0.5 percent to 98.16 per dollar from 97.72. The dollar traded at $1.2894 against the euro, compared with $1.2913.
Japan’s currency was down for a fourth week against the euro, losing 1.8 percent in its longest stretch of decline since January. Against the dollar, the yen gained 0.1 percent after a six-week losing streak. The euro advanced 1.9 percent versus the dollar this week, the biggest increase since mid-December.

Weakening Yen 

The yen dropped 7.9 percent against the dollar in February even as the Standard & Poor’s 500 Index plunged 11 percent. Evidence Japan’s economy was spiraling deeper into a recession eroded demand for the yen as a refuge from financial turmoil. Japan’s government reiterated yesterday that the economy contracted last quarter at the fastest pace since 1974.

“There has been a pickup of risk appetite this week,” said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon, the world’s largest custodial bank, with more than $23 trillion in assets under administration. “The yen obviously suffered even during the time of risk aversion last month. Either way, we are looking for a much weaker yen.” The yen may weaken to 105 in three months, Shankar said.

The New Zealand dollar, South Korean won and Australian dollar were among the biggest gainers against the greenback today as investors sought higher-yielding assets.

Bank of America 

Bank of America Chief Executive Officer Kenneth Lewis told reporters yesterday he expected the firm to make money this year after posting a profit in January and February. The bank joins JPMorgan Chase & Co. and Citigroup Inc. in saying it’s recovering from mortgage bond losses last year.

The kiwi, as New Zealand’s currency is known, appreciated as much as 1.2 percent to 52.68 U.S. cents and the Aussie increased as much as 0.9 to 66.04 U.S. cents, the highest levels since Feb. 13. The won was up 0.9 percent to 1,483.05 and headed for its biggest weekly advance in almost three months. The currency, Asia’s worst performer against the dollar this year, climbed 4.5 percent since March 6.

The yen weakened 1 percent to 51.38 per New Zealand dollar and 0.8 percent to 77.07 against Canada’s dollar today as the S&P 500 rallied 8.9 percent this week. Japan’s currency pared its declines today as the S&P 500 fell 0.8 percent today.

Swiss Franc 

The Swiss franc traded at 1.5323 per euro after touching 1.5401, the weakest level since Dec. 22. The currency plunged yesterday after the Swiss National Bank said it began buying currencies in its first solo intervention in foreign-exchange markets since 1992 and halved the target lending rate to 0.25 percent. It lost 4.3 percent versus the euro this week, the worst performance since the 16-nation currency debuted in 1999.
Against the dollar, the franc dropped 0.4 percent to 1.1893 today and was headed for a 2.7 percent weekly decline.

“We see significant value in maintaining Swiss franc shorts,” currency strategists led by Victoria Courmes at Citigroup Global Markets Inc. wrote in a research note. “We believe there is the potential for policy makers to have considerable success in devaluing the currency.” A short position is a bet an asset will decline.
The dollar’s decline versus the euro this week may be tempered by speculation finance ministers and central bankers in the Group of 20 nations will fail to agree on measures to support the euro area’s economy, analysts said. U.S. Treasury Secretary Timothy Geithner, Bank of England Governor Mervyn King and their counterparts are meeting near London today.

“I don’t think there will be a broad-based plan for stimulus in the euro zone,” said Meg Browne, a senior currency strategist at Brown Brothers Harriman & Co. in New York. “The dollar weakness is not likely to last.” The euro may drop to a range of $1.2680 to $1.2650 next week, she said.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net
Last Updated: March 13, 2009 12:44 EDT