Yen Rises as Reports Show Bankruptcies Fell, Confidence Gained

By Yasuhiko Seki

June 8 (Bloomberg) -- The yen advanced from a one-month low against the dollar and gained versus the euro after Japanese reports showed bankruptcies declined and merchant confidence improved, spurring demand for the nation’s assets.

The yen rose against 12 of the 16 most-traded currencies after Tokyo Shoko Research Ltd. said corporate bankruptcies fell 6.7 percent from a year earlier. Australia’s dollar was the best performer of the major currencies on optimism U.S. reports on retail sales and consumer confidence this week will add to signs the global economy is improving, spurring demand for higher- yield assets. The pound fell for a fourth day as U.K. Prime Minister Gordon Brown struggled to retain his party’s loyalty.

“A raft of economic data now suggests that the Japanese economy has pulled out of the recession and may enjoy the most visible recovery among developed countries,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “The yen is likely to be bought.”
The yen gained to 98.45 per dollar as of 7:25 a.m. in London from 98.64 in New York on June 5 when it dropped to 98.89, the lowest level since May 8. The yen climbed to 137.25 per euro from 137.81. The dollar was at $1.3940 per euro from $1.3968. Australia’s dollar rose 0.2 percent to 79.46 U.S. cents. The pound dropped to $1.5863 from $1.5981.

Confidence among Japanese merchants rose to a 14-month high in May, the Cabinet Office said in Tokyo. The Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, climbed to 36.7 from 34.2 in April, the highest level since March 2008. Prime Minister Taro Aso’s stimulus packages have helped protect small businesses from bankruptcy by providing them with access to credit, Tokyo Shoko said in Tokyo.

Exporters’ Selling 

The yen also strengthened for the first time in four days against the dollar as Japanese exporters sold the U.S. currency, said Kengo Suzuki, manager of the foreign bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group.

“Exporters apparently took advantage of last week’s unexpectedly strong rally of the dollar against the yen,” Suzuki said. “The dollar has finally reached the level that is above the budgeted exchange rate for the current fiscal year.”

Japanese firms forecast the dollar would average 97.18 yen in 12 months to March 2010, according to April’s quarterly Tankan survey on corporate sentiment and business plans.

British Pound 

The pound extended last week’s losses as Brown, who withstood a rebellion in his ruling Labour Party last week, faces a new attempt today by dissidents to oust him.

With results from 63 of Britain’s 69 EU districts reporting, Labour was running third with 15.3 percent, down 7 percent from 2004, according to the BBC. The Conservatives had 28.6 percent and the U.K. Independence Party had 17.4 percent. Labour lost to the Conservatives in Wales for the first time since 1918.

“Markets do not like political uncertainty,” said Andrew Milligan, head of global strategy at Standard Life Investments Ltd. in Edinburgh. “You might get a situation that some overseas investors pull back.”
The pound had its biggest weekly decline in three months against the dollar last week as Brown rearranged his Cabinet amid a series of resignations and calls for him to step down.

The Australian dollar rose for a third day against the yen after a report last week showed U.S. employers cut fewer jobs than expected, giving investors more reason to buy higher- yielding currencies.

U.S. Payrolls

U.S. payrolls fell by 345,000 last month, the smallest decrease in eight months, after a revised 504,000 loss in April, the Labor Department said on June 5.

Sales at U.S. retailers increased in May for the first time in three months as demand for cars picked up, according to a Bloomberg News survey before the government report on June 11. Retail sales climbed 0.5 percent, according to the median estimate of the survey.

When stocks rise, “the risk-appetite improves,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “When there is risk appetite, the Aussie is one of the most favored currencies by Japanese investors,” he said, referring to the Australian currency by its nickname.

Futures traders pared bets the euro and the yen would gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 6,793 on June 2, compared with net longs of 15,584 a week earlier.

The total of net longs betting on an advance in the yen compared with those on a drop was 9,621 on June 2, compared with 8,009 a week earlier. Futures are agreements to buy or sell assets at a set price and date.

BRICs Buy Dollar 

The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, rose 0.2 percent to 80.83, near the highest level in more than one week, as Brazil, Russia, India and China increased foreign reserves by more than $60 billion in May to limit currency gains as the first global recession since World War II restricted exports, data compiled by central banks and strategists show.

While Russian, Chinese and Brazilian leaders suggest substituting the dollar, the central bank purchases show just how dependant they remain on the world’s reserve currency. Russia is proposing the BRICs consider creating a new unit of exchange when they meet in Yekaterinburg on June 16. China and Brazil said last month they may look at ways of dropping the dollar for trade between the two countries.

“Foreign central banks do not want to see their currencies relentlessly strengthen,” said Daniel Tenengauzer, head of foreign-exchange and emerging-market debt strategy at Banc of America-Merrill Lynch in New York. “Such a move would dampen an already-weak outlook outside the U.S. and potentially risk even more capital-markets chaos if the dollar appeared to be heading toward a disorderly decline.”

-- With assistance from Dave Liedtka in New York, Reed V. Landberg in London, Shanthy Nambiar in Bangkok and Lilian Karunungan in Singapore.Editors: Nicholas Reynolds, Nate Hosoda
To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.
Last Updated: June 8, 2009 02:44 EDT