Yen Falls on Speculation Central Banks Are Ready to Intervene
By Stanley White
Nov. 13 (Bloomberg) --
The yen fell from two-week highs against the dollar and the euro after the Reserve Bank of Australia intervened to support its currency, fueling speculation more central banks plan to enter the market.
The yen declined versus the Australian dollar, after yesterday surging the most in three weeks, as an unidentified spokesman at the RBA confirmed purchases of its own currency. The euro dropped for a third day against the dollar before a government report that economists said will show Germany, Europe's largest economy, entered a recession.
The intervention ``caused the yen to fall back against the dollar,'' said
Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc, the U.K. bank that gets most of its profit from Asia. ``When you see one central bank intervening, that sparks fear in the market that others could do so as well.''
Japan's currency fell to 95.55 per dollar as of 2:28 p.m. in Tokyo from 95.01 late yesterday in New York, when it reached 94.48, the strongest since Oct. 28. It also slid to 119.15 against the euro from 118.77. Japan's currency earlier today reached 117.65, the highest this month. The euro fell to $1.2468 from $1.2505.
The Australian dollar climbed to 64.07 U.S. cents, recovering from an earlier low of 63.60 cents. The Aussie, as the currency is known, rose 0.8 percent from the New York close to 61.29 yen. The New Zealand dollar gained 0.1 percent to 53.42 yen. Central banks intervene in foreign exchange markets by arranging purchases and sales of currencies.
Strong Yen
Abrupt currency moves are undesirable and a stronger yen hurts domestic stock investors, Finance Minister Shoichi Nakagawa told lawmakers today in Tokyo. He said last month Japan was prepared to restrain the yen, which would be its first intervention in four years.
The BOJ, which trades on behalf of the Ministry of Finance, sold 14.8 trillion yen ($151 billion) in the first quarter of 2004, when the currency traded as high as 103.42 per dollar. The yen still ended the year stronger, at 102.63.
The Australian dollar has tumbled 36 percent versus the Japanese currency and 27 percent against the greenback in the past three months as the risk of a global recession prompted investors to cut purchases of higher-yielding overseas assets funded in Japan. Australia's benchmark rate is 5.25 percent, while Japan's is 0.3 percent and the U.S.'s is 1 percent.
'Hectic Moves'
``The RBA's intervention is most likely designed to prevent hectic moves in the market,'' said
Kimihiko Tomita, head of foreign exchange in Tokyo at State Street Bank & Trust Co., a unit of the world's largest money manager for institutions. ``The initial reaction is that people will be reluctant to sell other currencies for yen.''
The euro declined against the dollar on speculation the European Central Bank will lower interest rates to support growth.
Germany's gross domestic product contracted 0.2 percent in the third quarter after shrinking 0.5 percent in the previous three-month period, according to a Bloomberg News
survey of economists. The Federal Statistics Office will release the data at 8 a.m. in Wiesbaden today.
Weaker Euro
Traders increased bets the ECB will reduce its 3.25 percent rate in the first quarter. The implied yield on
Euribor futures contracts expiring in March fell to 2.73 percent yesterday, from 3.15 percent at the end of last month. The ECB benchmark is 0.39 percentage point higher than the Euribor contract yield, compared with a 12-month average of 0.19 percentage point below the futures rate.
``Economic data from Europe are weighing on the euro,'' said
Tadahiko Nashimoto, director of foreign exchange at Barclays Bank Plc in Tokyo. ``There could be more demand to sell the currency as Europe-based traders enter the market.''
The yen earlier rose to a two-week high against the euro after U.S. Treasury Secretary
Henry Paulson's plan to divert bailout money from banks sparked a reduction in purchases of higher-yielding assets.
Paulson plans to use the second half of the $700 billion Troubled Asset Relief Program, known as TARP, to help relieve pressure on consumer credit, scrapping a proposal to buy devalued mortgage assets from banks. He said yesterday in Washington he is exploring a new ``facility'' to support asset- backed debt.
Paulson Switch
``The markets are probably ill at ease with the concept that TARP funds, which were targeted for financial-sector stabilization, are now getting pushed away from that purpose by the political process,'' said
Robert Blake, a senior currency strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody.
The British pound slumped after Bank of England Governor
Mervyn King said the U.K. economy will shrink through most of next year and policy makers will cut interest rates further.
The currency declined to $1.4832, the lowest level since June 2002, before trading at $1.4907 from $1.4964 late yesterday in New York. It traded at 83.54 pence per euro, near a record low of 84.12 pence reached yesterday.
``Governor King was on the wires again this morning highlighting the downside domestic risks to growth,'' said
Dustin Reid, senior foreign-exchange strategist at RBS Greenwich Capital Markets in Chicago. ``The fact that he continues to harp on it, and it's at such a senior level, probably has a lot of people concerned about sterling.''
To contact the reporter on this story:
Stanley White in Tokyo at
swhite28@bloomberg.net
Last Updated: November 13, 2008 01:04 EST
http://www.bloomberg.com/apps/news?pid=20601110&sid=ajSSmJFoucwg
