Yen Trades Near Two-Month Low Versus Euro as Asian Stocks Rise

By Yasuhiko Seki and Ron Harui

March 13 (Bloomberg) -- The yen traded near a two-month low against the euro as a global rally in stocks reduced demand for the Japanese currency as a refuge.

The euro headed for its biggest weekly gain versus the dollar this year after European Central Bank council member Yves Mersch said he doesn’t see deflation risks in the 16-nation region, tempering speculation policy makers will cut interest rates. The Swiss franc was poised for its largest weekly loss against the euro since 1999 after the Swiss National Bank cut its key rate close to zero and started buying foreign currencies to stem the franc’s appreciation.

“Emerging signs of a rebound of stocks are improving the appetite for risk” and weakening the yen, said Yasuhide Yajima, senior economist in Tokyo at NLI Research Institute Ltd., a unit of Japan’s second-largest life insurer. “Growing confidence is prompting capital inflows into the currencies of resource-rich nations and emerging markets.”

The yen traded at 126.01 per euro as of 1:39 p.m. in Tokyo from 126.16 late in New York yesterday. It earlier touched 126.58, the weakest level since Jan. 7. The yen was at 97.50 versus the dollar from 97.72. The dollar was little changed at $1.2924 per euro from $1.2913.

The Nikkei 225 Stock Average rose 4.9 percent and the MSCI Asia Pacific Index of regional shares rallied 3.5 percent after Japan’s Finance Minister Kaoru Yosano said today Prime Minister Taro Aso is preparing a third spending plan aimed at easing a recession that may be the nation’s worst since World War II.
Weekly Gain
U.S. stocks posted the biggest three-day gain since November yesterday after Bank of America Corp. Chief Executive Officer Kenneth Lewis said the bank had a profit in the first two months of 2009, joining two of its biggest competitors, JPMorgan & Co. and Citigroup Inc., in saying it made money during the first two months of the year.

The yen is still headed for its first weekly gain against the greenback since January on speculation Japanese companies are bringing back earnings on overseas assets before the business year ends this month.
“The selling of currencies such as the euro against the yen by Japanese exporters and investors before the fiscal year- end is sending the Japanese currency higher,” said Minoru Shioiri, senior foreign exchange manager in Tokyo at Mitsubishi UFJ Securities Co., the brokerage unit of Japan’s biggest banking group.

Japanese investors may repatriate overseas earnings as Germany pays 15.6 billion euros ($20.2 billion) in coupon and principal payments on government debt today, according to data compiled by Bloomberg.

SNB Intervention 

Japan’s currency lost its allure as a haven to the U.S. dollar last month as the world’s second-largest economy contracted at the fastest pace among the developed economies. It lost 7.9 percent versus the dollar in February, the biggest monthly decline since August 1995.

The franc headed for its largest weekly decline against the dollar since Jan. 23 after the Swiss National Bank said yesterday it began buying currencies in its first solo intervention in foreign-exchange markets since 1992.
Switzerland’s central bank is “implementing this intention” to buy foreign currency to weaken the franc, spokesman Werner Abegg said when asked whether the SNB was already intervening. The SNB also halved the target lending rate to 0.25 percent, and said it will buy corporate bonds, a practice known as quantitative easing.

‘Knock-On Effect’ 

“This move by the SNB will have a knock-on effect to other markets,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, wrote in a research note yesterday. “Japan is in a similar position to Switzerland, with the economy contracting sharply.”
The Japanese government confirmed yesterday that the economy contracted at the fastest pace since 1974 last quarter, as exports, output and business spending collapsed.

Japan is “likely to turn its attention to quantitative easing measures once again, with the yen likely to gain attention,” BNP Paribas’ analysts wrote. “The dollar-yen is now expected to test the 99.70 recent high and the 100 level.” 

The Bank of Japan hasn’t sold its currency since March 2004, when it was around 109 per dollar. The central bank sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998, purchasing 3.05 trillion yen as the rate fell as low as 147.66.
The Swiss franc declined to 1.5371 per euro from 1.5299 yesterday, when it had a record loss of 3.3 percent. The franc dropped to 1.1889 against the dollar from 1.1851.

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 13, 2009 00:30 EDT