Yen Drops as Stock Gains, Yield Gap Curb Haven Demand

The yen slid versus all of its major counterparts as Asian stocks rose and the extra yield investors receive from U.S. securities climbed to the most in more than six weeks, damping the allure of the Japanese currency.
uched a one-month high against the yen before U.S. housing data that may reduce prospects for monetary stimulus by the Federal Reserve which tends to debase the greenback. Reports due today are forecast to show new home construction remained near an almost four-year high and the number of building permits rose. New Zealand’s currency held gains after Auckland-based Fonterra Cooperative Group Ltd. said milk-powder prices rose.
“When non-Japanese yields start rising, then you get more Japanese investors putting money offshore,” said Joseph Capurso, a strategist in Sydney at Commonwealth Bank of Australia (CBA), the nation’s biggest lender. This and low volatility are “very supportive of the yen’s weakness,” he said.
The yen fell 0.1 percent to 79.08 per dollar as of 10:33 a.m. in Tokyo after earlier dropping to 79.15, the weakest since July 18. It slid for a fourth day against the euro, dropping 0.2 percent to 97.25 from 97.08 yesterday. The 17-nation currency rose 0.1 percent to $1.2297. The so-called kiwi bought 80.79 U.S. cents after gaining 0.2 percent to 80.71 yesterday, the biggest advance since Aug. 3.
The MSCI Asia Pacific Index of shares climbed 0.3 percent.

Yield Gap

The difference between yields on two-year U.S. Treasuries and similar maturity Japanese government bonds was 20 basis points, the most since July 3. Five-year U.S. government debt offered a premium of 59 basis points over its Japanese counterpart, up from this year’s low of 36 basis points.
The Japanese currency has declined by 0.6 percent in the past week, the worst performance among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes after the Australian dollar. The greenback and euro rose 0.1 percent.
The annual pace for U.S. housing starts was probably at 756,000 in July, according to the median estimate of economists surveyed by Bloomberg News before today’s Commerce Department report. That compares with a 760,000 rate in the previous month, the fastest since October 2008. Building permits rose to 769,000 last month from 760,000 in June, a separate poll showed.
The U.S. central bank has held its target for overnight bank lending in a range of zero to 0.25 percent since 2008 and plans to keep it there at least through late 2014 to stimulate the world’s biggest economy. The Fed also bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds quantitative easing.
Dallas Fed President Richard Fisher said in a CNBC interview yesterday that the U.S. economy probably won’t lapse into recession in 2013 and that new stimulus wouldn’t spur growth.
New Zealand’s currency was supported after whole-milk powder prices for October delivery rose 7.3 percent in an Internet-based auction by Fonterra, the world’s largest dairy exporter, climbing for a second time. The company accounts for about 40 percent of the global trade in dairy products.
To contact the reporters on this story: Sharon Chen in Singapore at schen462@bloomberg.net; Kristine
Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net