Yen Rises Versus Dollar, Euro as Stock Drop Saps Risk Appetite

By Bo Nielsen

Oct. 27 (Bloomberg) -- The yen advanced against the dollar and the euro as stocks declined, sapping demand for higher- yielding currencies.

The Japanese currency climbed the most versus the South Korean won and Swedish krona as the MSCI World Index of shares fell for a sixth day. The Australian dollar rose against all but three of the 16 most-traded currencies after a Chinese government official said industrial production may rise 16 percent in the fourth quarter, fueling demand for raw materials. The U.S. dollar was little changed, after gaining the most against the euro since August yesterday.

“The market is still a little wary from yesterday’s correction and may need a bit longer for risk appetite to come back,” said Michael Klawitter, a foreign-exchange strategist in Frankfurt at Commerzbank AG, Germany’s second-biggest lender. “I would continue to bet on the outperformance of the Australian dollar.”
The yen was at 136.86 per euro as of 6:30 a.m. in New York, from 137.10 yesterday, and 91.93 per dollar, from 92.19. Australia’s dollar climbed to 91.86 U.S. cents, from 91.62. The U.S. dollar was at $1.4888 per euro, from $1.4876 yesterday, when it strengthened 0.9 percent, the most since Aug. 7.

The MSCI World Index fell 0.2 percent today, building on its 1.2 percent drop yesterday, the biggest decline since Oct. 2. The three-month implied volatility on euro-yen options rose to 13.14 percent, the most in more than a week, suggesting investors expect the currencies to move in a wider range.

‘Vulnerable’ Equities 

The yen rose after India’s central bank increased the statutory liquidity ratio for banks to 25 percent from 24 percent and raised its inflation forecast, taking the first step toward withdrawing its record monetary stimulus. Norges Bank will probably become the first European central bank to raise interest rates at its meeting tomorrow, according to all of the 20 economists in a Bloomberg survey.

“Tightening steps by the likes of India and Norway add to the belief that we are now entering the exit phase of the crisis,” Derek Halpenny, European head of currency strategy at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a report today. “Equities look vulnerable to a correction, which would offer the dollar some respite.”

China’s industrial production may pick up pace this quarter after advancing 13.9 percent in September, according to Ministry of Industry and Information Technology spokesman Zhu Hongren, who gave an online briefing today.

Aussie Confidence 

The aussie was also buoyed after National Australia Bank Ltd. said an index of the nation’s business confidence rose to 16 points in the quarter, from minus 4 points in the previous three-month period. The quarterly survey of 930 companies was conducted between the end of August and early September.
“This global pool of investible funds has to find somewhere to get yield,” David Forrester, a currency economist in Singapore at Barclays Capital, said in a Bloomberg Television interview. “Commodity currencies are generally offering that. We do prefer the commodity currencies.”

Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets when risk appetite increases.

The yen also rose from a five-week low versus the dollar on speculation Japanese companies are bringing back earnings on overseas assets before the end of the month.

Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.

“There’s talk that exporters are buying the yen,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is causing the dollar-yen to dip.”

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
Last Updated: October 27, 2009 07:02 EDT