By Ron Harui
May 6 (Bloomberg) -- The yen and the dollar rose against the euro on concern U.S. regulators will say Bank of America Corp. needs $34 billion in new capital, boosting demand for the relative safety of the currencies.
Japan’s currency climbed against all 10 major Asian currencies. Bank of America faces the largest need for new capital among the 19 banks reviewed, according to people familiar with the matter. The euro fell the most in more than a week against the yen on concern the European Central Bank tomorrow will cut interest rates and buy debt to stem the slump.
“The reported amount of capital needed by Bank of America is very large, causing risk aversion,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank. “As such, the yen and the dollar are being bought as ‘safe-haven’ currencies.”
The yen rose 0.7 percent, the most since April 24, to 98.24 per dollar as of 7:32 a.m. in London from 98.82 yesterday in New York. Japan’s currency climbed 0.9 percent, the most since April 27, to 130.49 per euro from 131.73. The dollar advanced to $1.3302 per euro from $1.3330.
The Dollar Index, used by the ICE to track the greenback versus the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, increased to 84.221 today from 84.157 yesterday.
Fed Stress Tests
The Japanese and U.S. currencies gained as the Federal Reserve plans to deliver results of stress tests on U.S. banks that may show about 10 companies need additional capital, people familiar with the matter said.
“Investors are likely to be risk averse ahead of the release of the results” of the stress tests, said Norifumi Yoshida, vice president of the trading section in Singapore at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank. “We can’t rule out the possibility that the yen and the dollar will be bought” as a shelter from the crisis, he said.
Treasuries rose by the most in a week on speculation the stress-test results will feed demand for the relative safety of government debt.
The 10-year note yield fell two basis points to 3.15 percent, according to BGCantor Market Data. The price of the 2.75 percent security maturing in February 2019 rose 1/8, or $1.25 per $1,000 face amount, to 96 22/32.
“To the extent that there are banks that need capital, our hope is that many of them will be able to raise that capital through either private equity offers or through conversions and exchanges of existing liabilities,” Federal Reserve Chairman Ben S. Bernanke told lawmakers at a hearing in Washington yesterday.
Won, Rupiah Slide
South Korea’s won led declines in Asian currencies amid concern policy makers will need to take more steps to shore up banks and support economic growth because of the global credit crisis. The won tumbled 0.7 percent to 1,277.25 per dollar and the rupiah slid 0.5 percent to 10,451, according to data compiled by Bloomberg.
Asian economies face a “long recovery ahead” from the global slowdown and “forceful” fiscal measures are needed to lift the region out of recession quickly, the International Monetary Fund said in a report today.
The MSCI Asia-Pacific Index excluding Japan fell 0.3 percent today after the Standard & Poor’s 500 Index declined 0.4 percent yesterday.
Stocks Decline
“It’s a period of consolidation modestly driven by the sell-off in U.S. stocks and the uncertainty of the stress-test results,” said Callum Henderson, Singapore-based global head of currency research at Standard Chartered Plc.
The U.S. stocks benchmark had rallied 34 percent in eight weeks, rebounding from a 12-year low to erase all of this year’s drop, on optimism the global slump may be easing. Fed Chairman Bernanke yesterday warned that another shock to the financial system would undercut the central bank’s forecast that the U.S. recession will give way this year to a slow recovery.
Europe’s single currency weakened as the ECB will probably lower the benchmark rate by a quarter-percentage point to 1 percent tomorrow, according to a Bloomberg survey of economists. That would be the lowest level since the bank took charge of monetary policy in 1999.
“The ECB will at least announce something unusual,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “In terms of policy measures, they’ll be discussing the types of measures that would potentially weaken the euro.”
The volume of foreign-exchange trading will likely be less than normal because of Japan’s “Golden Week” holiday today, Callow said.
ECB council member Athanasios Orphanides said yesterday the financial crisis needs “drastic” measures. Orphanides and fellow member George Provopoulos from Greece have indicated they may support cutting the target rate to less than 1 percent and buying debt to pump money into the economy.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net
Last Updated: May 6, 2009 02:35 EDT
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