28 May 2009
May 28 (Bloomberg) -- The yen fell toward a two-week low against the euro and weakened versus the dollar on speculation Japanese investors will buy more overseas assets on signs the global recession is easing.The yen slid versus all of the 16 most-active currencies after a Japanese government report showed investors boosted purchases of foreign bonds to the most in a month. The Australian dollar rose toward a seven-month high against the U.S. currency on optimism the global recession will ease, reviving demand for the South Pacific nation's securities.
"It seems Japanese investors are betting on the optimism that the global economy has bottomed out and are willing to spend more on assets of emerging markets," said Shoichi Handa, a senior dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. "Since the Australian economy benefits significantly from a recovery of global demand, the Australian dollar may reach 80 yen."
The yen weakened to 133.03 per euro as of 1:02 p.m. in Tokyo from 131.83 in New York yesterday, when it touched 133.52, the lowest level since May 12. The yen dropped to 96.26 per dollar from 95.34, after reaching 96.27, the weakest since May 19. The dollar traded at $1.3822 against the euro from $1.3825.
Australia's currency gained 0.2 percent to 77.71 U.S. cents and advanced 1.1 percent to 74.80 yen. New Zealand's dollar strengthened 0.7 percent to 59.00 yen.
The New Zealand dollar is the best performer against the yen this month, gaining 5.6 percent. The nation's 10-year government bonds offer 4.43 percentage points more yield than similar-maturity Japanese debt.
Budget Deficit
The yen also weakened as the Nikkei 225 Stock Average gained 0.3 percent after earlier falling as much as 0.9 percent.
"Equity markets of emerging economies, including Asia, are holding a relatively firm undertone, which means risk appetite is still reasonably strong," said Akira Takeuchi, a Tokyo-based currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan's seventh-largest banking group. "The yen will be sold against higher-yielding currencies."
Japanese investors bought 641.1 billion yen ($6.6 billion) more overseas bonds and notes than they sold in the week ended May 23, the biggest net purchases in a month, according to a report released by the Ministry of Finance today.
Investment Trusts
Nomura Asset Management Co., a unit of Japan's largest brokerage firm, reopened its higher-yielding bond fund to new investments yesterday. The fund includes assets such as Brazilian real-denominated debt. Its net assets rose to 287.9 billion yen from 45.3 billion yen in January, according to Nomura's Web site.
Benchmark interest rates are 3 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. The risk in such trades is that currency market moves will erase profits.
Japanese retail sales fell for an eighth month in April, reducing the appeal of the nation's currency. Sales slid 2.9 percent from a year earlier after decreasing a revised 3.8 percent in March, the Trade Ministry said in Tokyo.
Demand for the relative safety of the yen and the dollar may increase after the Federal Deposit Insurance Corp. said yesterday the number of "problem" banks grew to a 15-year high, reviving concern about the health of the U.S. banking system.
‘Problem' Banks
The FDIC classified 305 banks as "problem" and the total assets involved rose 38 percent to $220 billion, the highest since 1993, the agency said, without identifying any of the lenders. The FDIC said its insurance fund slumped 25 percent to the lowest level in 15 years.
The cost of borrowing dollars for three months between banks rose for a second day yesterday after ending a 38-day decline amid renewed concern some financial institutions aren't strong enough to weather the financial turmoil. The London interbank offered rate, or Libor, for three-month loans increased one basis point to 0.674 percent.
The dollar also traded near a one-week high against the euro on speculation General Motors Corp. will file for bankruptcy this week, renewing demand for the relative safety of the greenback.
A General Motors bankruptcy filing became almost certain after the world's largest automaker failed yesterday to persuade enough bondholders to take equity in a streamlined company in exchange for $27 billion of debt. The debt-for-equity swap offer by GM failed to win the required 90 percent approval of bondholders by the time it expired last night
‘Inevitable'
"GM's insolvency looks practically inevitable, which would likely cause risk aversion," said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. "This could spark buying of the dollar."
Demand for the euro may also weaken before a government report economists said will show German unemployment rose for a seventh month in May as company orders slumped in the worst recession since World War II.
The number of people out of work increased a seasonally adjusted 64,000 in May, sending the adjusted jobless rate to 8.4 percent from 8.3 percent, according to a Bloomberg News survey of economists before the Nuremberg-based Federal Labor Agency release the report today.
"Given renewed concerns about the banking system and the economy there following the rapid run-up of late, the euro may be sold back toward $1.37," said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany's second-largest bank.
