Yen Gains as Stocks Drop, Europe Discord Boosts Haven Bid

By Kristine Aquino and Neal Armstrong - Sep 24, 2012 3:26 PM GMT+0800

The euro dropped for a fifth day versus the yen before a report that economists said will show German business confidence was near the lowest in two years.
The 17-nation currency also fell against the dollar after German Chancellor Angela Merkel and French President Francois Hollande clashed over the weekend on a timetable to introduce joint oversight of the euro area’s banking sector. The yen strengthened versus all its major counterparts as stocks declined, boosting demand for haven assets. Australia’s dollar dropped on speculation growth in China, its biggest trading partner, is weakening.
“Fundamentals in Europe look weak because of austerity measures,” said Kengo Suzuki, a currency strategist at Mizuho Securities Co. in Tokyo. “The markets started to realize they can’t be too optimistic about the debt crisis. We are seeing safety bids into the yen.”
The euro dropped 0.3 percent to 101.19 yen at 8:23 a.m. in London after declining to 100.87, the weakest level since Sept. 14. The shared currency fell 0.2 percent to $1.2960. The yen climbed 0.1 percent to 78 per dollar.
The Ifo institute’s German business climate index, a gauge of confidence among executives, was at 102.5 this month, according to a Bloomberg News survey before today’s report. The gauge fell to 102.3 in August, the lowest since March 2010.

‘See Results’

Germany’s Merkel rebuffed her French counterpart Hollande’s appeal to activate the euro zone’s banking union “the earlier, the better” over the weekend.
Financial markets “that are watching Europe want to see results,” Merkel said at the Sept. 22 meeting of the two leaders near Ludwigsburg, Germany, celebrating the two nations’ reconciliation after World War II. Still, “it has to be thorough, the quality has to be good and then we’ll see how long it takes,” she said.
The Greek government and its international creditors took a week-long break from negotiations on additional funding as Prime Minister Antonis Samaras’s coalition struggles to implement 11.5 billion euros in budget cuts. The troika of creditors -- the International Monetary Fund, the European Central Bank and the European Commission -- said on Sept. 21 they’ll take a “brief pause” after making “good progress” in talks.
The yen appreciated as the MSCI Asia Pacific Index (MXAP) of shares dropped 0.3 percent and the Stoxx Europe 600 Index fell 0.4 percent.
Japan’s currency tends to strengthen during periods of financial turmoil because the country’s current-account surplus means it isn’t reliant on foreign capital.

Best Performer

The yen gained 5.6 percent in the past six months, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 3.1 percent, and the dollar dropped 0.5 percent.

“The euro has lost momentum following its initial surge higher and looks constrained on any move above $1.30,” Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole CIB in Hong Kong, wrote in a note to clients. “Any upside in euro-dollar will be limited to resistance around $1.3180,” he said, referring to an area where sell orders may be clustered.
The Bank of Japan (8301) said the economy has returned to a recovery path and it will implement monetary easing seamlessly, according to minutes of its August meeting released today. The central bank unexpectedly increased its asset-purchase fund to 55 trillion yen at its meeting last week.

Australia Dollar

The Australian dollar depreciated as China’s Economic Information Daily said downward pressure on the Asian nation’s economy was increasing.
Europe’s debt problems are still at a “high risk” phase and the global economic recovery is “bumpy,” the newspaper cited Zhang Ping, head of the National Development and Reform Commission, as saying.
Standard & Poor’s lowered its base case forecast for growth in China’s gross domestic product this year by about a half percentage point to 7.5 percent.

The so-called Aussie fell 0.3 percent to $1.0422, and declined 0.5 percent to 81.35 yen.

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net