Yen Advances on Speculation Japan’s Recession Starting to Ease

By Yasuhiko Seki and Ron Harui

April 22 (Bloomberg) -- The yen rose against the dollar and the euro after a Japanese government report showed exports fell at a slower pace, spurring speculation the worst of the nation’s recession may be over.

The dollar traded near a five-week high against the euro on speculation U.S. officials this week will signal the nation’s slump is waning, boosting investor confidence in dollar- denominated assets. The Australian dollar weakened against the greenback after a report showed the annual inflation rate fell to the lowest level in 18 months, giving policy makers more room to cut interest rates.

“Improvement in terms of trade could have a positive influence on the Japanese economy,” said Susumu Kato, chief economists at Calyon Securities in Tokyo. “The yen will be traded in a stable manner.”
The yen climbed to 98.29 per dollar as of 10:58 a.m. in Tokyo from 98.73 yesterday in New York. Japan’s currency advanced to 127.09 per euro from 127.81. The U.S. currency was at $1.2928 per euro from $1.2948.

The yen rose against 15 out of 16 most-traded currencies after Japan’s Ministry of Finance said custom-cleared exports declined 45.6 percent in March from a year earlier, following a record drop of 49.4 percent in February.

Geithner Comments 

“The trade balance data seem to suggest that Japan’s economic slump may also ease somewhat in the last quarter,” Calyon’s Kato said.

Japan’s gross domestic product may have contracted at an annual 10.9 percent pace in the first quarter, economists surveyed by Bloomberg predict, after shrinking 12.1 percent pace in the previous three months, the steepest drop since 1974.

The Dollar Index, used by the ICE to track the greenback against the currencies of six major U.S. trading partners, climbed to 86.611 from 86.579 on speculation comments later today by Treasury Secretary Timothy Geithner will signal that the worst of the financial crisis may be over.

Geithner told a congressional panel yesterday that most U.S. banks have more capital than needed. He also said there are signs of “thawing” in credit markets and some indication that confidence is beginning to return.
“The U.S. was the epicenter of the crisis and they’ll be the first out of it,” said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world’s largest interbank broker. “That’s got to be bullish for the dollar.” 

The Federal Reserve plans to release results of “stress tests” on banks on May 4. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen.

Aussie and Kiwi 

Australia’s dollar fell to 70.54 U.S. cents from 71.14 cents in New York, while New Zealand’s dollar declined to 55.70 cents from 56.40 yesterday.

Australia’s consumer price index rose 2.5 percent in the first quarter from a year earlier, after gaining 3.7 percent in the fourth quarter, the Bureau of Statistics said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for a 2.8 percent gain.

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: April 21, 2009 22:10 EDT