Yen Weakens Against Euro as Asian Stocks Jump by Most in a Year
By Kosuke Goto and Ron Harui
Japanese yen notes. Aug. 20 (Bloomberg) -- The yen weakened against the euro for a second day as a rebound in stock markets across Asia suggested investors will have more confidence to borrow the currency to buy higher-yielding assets.
Japan's currency declined as the Morgan Stanley Capital International Asia-Pacific Index of regional shares rose the most in more than a year, ending a four-day losing streak. A surprise half-percentage point cut by the Federal Reserve in the discount rate on Aug. 17 helped revive equity markets.
``The yen is tracking stocks,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo. ``When equities gain, the yen declines.''
Japan's currency fell to 154.24 per euro as of 11:38 a.m. in Tokyo from 154.10 late in New York on Aug. 17. It also traded at 114.33 versus the dollar from 114.36. It may decline to 154.80 per euro and 114.80 against the dollar today, Muramatsu said.
The MSCI Asia-Pacific Index, which rose 3.7 percent, had a correlation of 0.96 with the euro-yen over the past year. A value of 1 would mean they moved in lock step. South Korea's Kospi index jumped 4.3 percent, the most in almost three years, leading gains in other markets. Japan's Nikkei 225 Stock Average climbed 3.7 percent.
Back Foot
The Fed lowered the rate it charges to lend money to banks by 0.5 percentage point to 5.75 percent and acknowledged for the first time that an extraordinary policy shift is needed to contain the U.S. subprime-mortgage collapse that triggered liquidity concerns and a rout of global stock markets. U.S. stocks surged, sending the S&P 500 to its biggest rally in four years.
``The yen will remain on the back foot,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``The rebound in U.S. stock markets, in the sense that the Fed is there to support growth, is pretty positive for carry trades.'' The yen may decline to 115 per dollar and 155 per euro today, Morriss said.
The yen may strengthen to 110 per dollar this week as Japanese individual investors stop sales as the currency rallies, according to Deutsche Securities.
Japan's lowest overnight lending rate among major economies has prompted domestic investors to seek higher-yielding assets overseas, pushing the yen to a 4 1/2-year low against the dollar in June. The yen became the best performer among the 16 most- active currencies in the past month as U.S. mortgage losses fueled risk aversion, discouraging Japan's retail traders from buying currencies such as Australian and New Zealand dollars.
Severe Losses
The New Zealand dollar fell on concern volatility in global stock markets will prompt investors to take home their funds when as much as NZ$2.5 billion ($1.7 billion) of bonds mature today. Redemptions today include NZ$1.43 billion of uridashi bonds sold to individuals in Japan by Germany's KfW Group.
``With the yen rising sharply, many Japanese retail traders have faced severe losses,'' said Koji Fukaya, senior currency strategist in Tokyo at Deutsche Securities. ``Japanese retail traders are now largely taking a wait-and-see attitude amid concern over U.S. subprime issues.''
The yen rose to 78.42 against New Zealand's dollar from 79.74 on Aug. 17, extending last week's 10.6 percent rally, the most since October 1998. It gained to 90.50 versus Australia's dollar from 91.22.
Yen short positions by Japanese investors, bets the currency will weaken, fell to a two-month low as a rout in global financial markets sparked an exit of carry trades.
The difference in the number of wagers for a decline in the yen compared with those on a gain, known as net shorts, fell to 83,329 contracts on Aug. 17, the lowest since June 29, according to the Tokyo Financial Exchange.
Euro Technicals
The euro also gained as charts traders use to predict price movements signaled the currency's 5 percent decline against the yen last week was too fast. The 14-day relative strength index for the euro-yen was 28.25. A level below 30 indicates the euro's fall may reverse.
``The euro appears oversold,'' said Xing Wei, a currency dealer at Shinsei Bank Ltd. in Tokyo. ``We may see some buying of the euro,'' to 155 yen and $1.3550 today, she said. |
