Yen Falls as Signs of Ease in Global Slump Sap Safety Demand

By Yasuhiko Seki and Ron Harui

July 30 (Bloomberg) -- The yen declined for the first time in three days against the euro after a government report showed Japanese manufacturers boosted production for a fourth month, sapping demand for safe-haven currencies.

Japan’s currency also fell versus 15 of its 16 major counterparts as an advance in Asian stocks spurred speculation investors will purchase higher-yielding assets. The euro traded near a one-month high versus the Swiss franc before a European report that may show executive and consumer confidence rose to an eight-month high, adding to signs the recession in the 16- nation region may be abating.

“As output data and the slew of economic indicators suggest, the global economy is now on the mend,” said Yuji Kameoka, a strategist in Tokyo at Daiwa Institute of Research Ltd., a unit of Japan’s second-largest brokerage. “The yen and the dollar will weaken against higher-yielding currencies.”

The yen declined to 133.73 per euro as of 6:47 a.m. in London from 133.45 in New York yesterday when it touched 132.79, the highest level since July 22. The Japanese currency traded at 95.06 per dollar from 94.99.

The euro traded at 1.5274 francs from 1.5272 francs in New York yesterday when it rose to 1.5281, the strongest since June 29. Europe’s currency was at $1.4067 from $1.4050.

Asian stocks strengthened, with the MSCI Asia Pacific Index of regional shares rising 0.5 percent. Futures on the Standard & Poor’s 500 Index climbed 0.5 percent.

Obama, China

The Japanese currency also weakened after President Barack Obama said yesterday the U.S. “may be seeing the beginning of the end of the recession,” reviving optimism the global slump will slow. Demand for the dollar waned after China’s central bank said it aims to consolidate the nation’s economic recovery.

“Obama’s comments and Chinese policy makers saying things are OK are clearly driving the yen lower,” said Satoshi Okagawa, head of the foreign-exchange forward trading group at Sumitomo Mitsui Banking Corp. in Tokyo. “Stocks are a tad higher, so the yen is also being sold a bit.”

China will maintain a “moderately loose monetary policy” and aims to consolidate the nation’s economic recovery, the People’s Bank of China said on its Web site hours after the market closed yesterday

Japan’s Output Data

Japan’s industrial production increased 2.4 percent from May, when it rose 5.7 percent, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg News estimated a 2.5 percent increase. The Bank of Japan raised its assessment of the economy this month, citing rebounds in trade and production as reasons “economic conditions have stopped worsening.”

Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. compare with 2.5 percent in New Zealand and 3 percent in Australia, making the South Pacific nations’ assets attractive to investors. The yen has weakened 18 percent versus New Zealand’s dollar and fallen 22.5 percent against Australia’s dollar so far this year.

The euro was bolstered as an index of executive and consumer sentiment in the 16-nation region rose to 75.0 in July, the highest since November, from 73.3 in June, a Bloomberg survey showed. The European Commission releases the report at 11 a.m. in Brussels today.

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said last week that interest rates are “appropriate” and that an exit strategy is built into the bank’s recent non-conventional measures.

“Basically, the euro is still a strong currency,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. “The central bank is keeping rates unchanged at 1 percent, which means there’s a rate gap with the U.S. and Japan in the euro’s favor.”

New Zealand’s Dollar

New Zealand’s dollar fell the most in three weeks against the greenback after the nation’s central bank kept its benchmark interest rate unchanged for a second month. Reserve Bank Governor Alan Bollard said in a statement in Wellington today that rates may fall further and won’t rise until late next year.

“The forecast recovery is based on a further easing in financial conditions,” Bollard said after leaving the official cash rate at a record low 2.5 percent. “If this easing does not occur, the recovery could be put at risk. In these circumstances we would reassess policy settings.”

All 10 economists surveyed last week by Bloomberg News forecast today’s decision. All expected the rate will be unchanged at the Sept. 10 review.

New Zealand’s dollar dropped to 65.20 U.S. cents from 65.74 cents yesterday, after falling as much as 1.5 percent earlier. The currency trimmed this month’s gain to 1 percent.

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: July 30, 2009 02:19 EDT