Got appetite for risk? Yen Falls on Speculation China Stimulus to Boost High-Yielders
By Ron Harui and Stanley White
Nov. 10 (Bloomberg) -- The yen declined for a second day against the euro and the dollar on speculation China's $586 billion stimulus package will give investors confidence to buy higher-yielding assets using money borrowed in Japan.
The yen fell the most against the South African rand and Australia's dollar on speculation support for China's economy, the world's fourth largest, may help avert a global recession and improve traders' appetite for risk. The Group of 20 nations is ready to act ``urgently'' and urged governments to lower interest rates and raise spending at a meeting yesterday in Sao Paulo.
``China and the tone of the G-20 meeting are clearly going to provide some support to the economic outlook,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``This would reduce risk aversion. The yen looks weak overall.''
The yen fell to 127.06 per euro at 9:15 a.m. in Tokyo from 124.90 late in New York on Nov. 7. Against the dollar, it declined to 98.92 from 98.24. The euro rose to $1.2844 from $1.2718. The pound advanced to $1.5813 from $1.5643. The yen may decline to 130 versus the euro this week, Morriss said.
Against the South African rand, the yen declined 3.5 percent to 10.0085 from 9.6559. It also fell 2.9 percent versus the Australian dollar to 68.23 and 2 percent against the New Zealand dollar to 59.27.
In carry trades, purchases of higher-yielding assets are funded in nations with lower interest rates, earning the spread between the two. The risk is that currency market moves erase those profits. Japan's benchmark rate of 0.3 percent compares with 3.25 percent in Europe, 12 percent in South Africa, 5.25 percent in Australia and 6.5 percent in New Zealand.
China Stimulus
The yen also weakened as volatility implied by one-month dollar-yen options fell to 23.74 percent from 24.27 percent on Nov. 7, signaling a reduced risk of exchange-rate fluctuations that make carry trades unprofitable. Volatility reached 41.79 percent on Oct. 24, the highest since Bloomberg began compiling the data in December 1995.
China's stimulus plan, equivalent to almost a fifth of last year's gross domestic product, will go toward low-rent housing and infrastructure, the Beijing-based State Council said yesterday on its Web site. The government will also grant tax breaks to boost corporate spending.
World leaders will meet in Washington on Nov. 15 to discuss their response to a global economic crisis sparked by losses on mortgage derivatives and a seizure in credit markets.
``There's a chance emerging-market economies like China, India and Brazil could take the lead in responding to the financial crisis,'' Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. ``There's a risk that stocks gain and the yen weakens should these steps improve market sentiment.''
The yen dropped versus all of the 16 most-active currencies as the MSCI Asia-Pacific Index of regional shares climbed 1.3 percent and the Nikkei 225 Stock Average rose 3.9 percent.
bloomberg.com |
