Yen Falls as Rising Stocks Spur Demand for High-Yield Assets

By Ron Harui and Theresa Barraclough

April 2 (Bloomberg) -- The yen fell against the euro as Asian stocks gained on optimism the worst of the global recession is ending, spurring investors to increase purchases of higher-yielding assets.

The euro rose versus the dollar on speculation European Central Bank President Jean-Claude Trichet will signal the bank will refrain from cutting interest rates further after lowering them later today. New Zealand’s dollar may decline against the greenback after Finance Minister Bill English said a stronger currency would make it difficult for the nation to snap out of its worst slump in more than three decades.

“Asian and Japanese stocks are rising, reflecting an improvement in risk appetite,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan’s largest brokerage. “This is leading to selling of the yen.” 

The yen dropped to 131.10 per euro as of 11:50 a.m. in Tokyo, from 130.52 in New York yesterday. Japan’s currency fell to 98.71 against the dollar from 98.53. The euro advanced to $1.3282 from $1.3249. Europe’s single currency was at 91.72 British pence from 91.59 pence.

New Zealand’s dollar traded at 56.80 U.S. cents, from 56.78 cents yesterday. The currency earlier slipped as much as 0.7 percent following the finance minister’s comments.
The Nikkei 225 Stock Average rose 3 percent and the MSCI Asia-Pacific Index of regional shares advanced 3.6 percent. The Standard & Poor’s 500 Index climbed 1.7 percent yesterday.

G20 Meeting 

The Group of 20 summit convenes in London today as some reports suggest the pace of decline is easing. U.S. durable- goods orders and home sales rose in February, Chinese urban investment surged 26.5 percent in the first two months of the year, and German investor confidence in March reached its highest level since July 2007. The Standard & Poor’s 500 Index last month rallied the most in seven years.
Japanese investors were net buyers of foreign bonds for a third straight week, purchasing 663.1 billion yen ($6.1 billion) during the week ended March 28, according to figures released by the Ministry of Finance in Tokyo today.

“Last week’s aggressive purchases of foreign bonds by Japanese investors probably reflected their interest in buying on weakness,” said Tomoko Fujii, a rates and currency strategist at Banc of America Securities-Merrill Lynch Japan, said in a Bloomberg Television interview. “We saw a sudden yen appreciation last week, so that created an opportunity to buy foreign assets.”

Japan’s benchmark interest rate is 0.1 percent, compared with 3.25 percent in Australia, 3 percent in New Zealand and 11.25 percent in Brazil, encouraging domestic investors to seek higher returns abroad.

European Yields 

The euro strengthened against the yen on speculation assets in the 16-nation region will maintain their yield advantage over those in Japan even if the ECB reduces borrowing costs today.

The ECB will cut its benchmark to 1 percent from 1.5 percent today, according to a Bloomberg survey. ECB council member Axel Weber said last month that the central bank shouldn’t cut rates below one percent.
“The ECB is likely to indicate it won’t lower borrowing costs further,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This is positive for the euro,” which may rise to 141.99 per yen and $1.3299 today, he said.

New Zealand

New Zealand’s dollar declined against 12 of the 16 major currencies as the finance minister’s comments signaled the government is seeking a weaker currency.

“Rising interest rates and a rising dollar are going to make it a bit more difficult for New Zealand to get through the bottom of this recession and out the other side,” English said today in an interview with Radio New Zealand. “If we are in the bottom of a sharp recession, then rising interest rates and a rising currency are a bit of an anomaly.”

A lower currency would bolster exports, which make up 30 percent of the economy, English said.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net
Last Updated: April 1, 2009 23:15 EDT