The yen strengthened against the Swedish krona and the New Zealand dollar after billionaire investor George Soros said gains in stocks are a “bear-market” rally. The Bank of Japan said today it will increase funds to commercial banks by broadening the range of collateral it accepts in an effort to encourage lending.
“It’s a near-term correction of the yen after a recent decline, which was driven by a rally in risk assets,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Overall, we remain bearish on the yen. This is just a rebound in a weakening trend.”
Japan’s currency strengthened 0.9 percent to 100.14 per dollar at 7:50 a.m. in New York, from 100.99 yesterday. The yen appreciated 2 percent to 132.82 per euro from 135.49. The dollar gained 1.2 percent to $1.3264 per euro from $1.3416.
The yen’s gains versus the dollar and euro, the first in four days, came as Standard & Poor’s 500 Index futures slid 1.7 percent and stock markets in Europe declined.
“It’s a bear-market rally because we have not yet turned the economy around,” Soros, 78, said in an interview yesterday on Bloomberg Television, referring to the recent rebound in stock prices. “This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime.”
IMF Estimates
The International Monetary Fund will raise its estimates for U.S. bad debt to $3.1 trillion from a January prediction of $2.2 trillion, with estimates of another $900 billion of toxic assets from Europe and Asia, the Times newspaper said today without saying where it got the information.
The Reserve Bank of Australia cut interest rates less than traders anticipated. RBA Governor Glenn Stevens lowered the cash target by a quarter-percentage point to 3 percent, less than the half-point reduction indicated by a Credit Suisse Group index based on swaps trading. The RBA left its rate at 3.25 percent on March 3. The Aussie fell 1 percent to 70.70 U.S. cents.
“Given expectations for more rate cuts in Australia, it seems to be still risky to resume a yen carry trade type of investment,” said Sho Komamura, a foreign-exchange dealer at Hachijuni Bank Ltd. in Tokyo. “I won’t deny there may be investors who think that as long as there are some interest-rate differentials, such trades will pay off.”
New Zealand’s Dollar
New Zealand’s dollar dropped 1.8 percent to 57.77 U.S. cents, after a four-day advance. In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher rates. The risk is that market moves can erase those profits.
Standard Life Investments said it’s betting against the yen and sold the currency to buy the U.S. dollar when it strengthened beyond 90 to the dollar.
“We expect the yen to soften against most things, especially against the dollar,” said Euan Monro, head of the firm’s multi-asset team in Edinburgh. “We would view the yen at that level as making Japan very uncompetitive. If it gets to 110 or 115 to the dollar, we would regard that as mission accomplished.”
BOJ Decision
Bank of Japan Governor Masaaki Shirakawa and his colleagues decided by a unanimous vote to keep the benchmark lending rate unchanged at 0.1 percent today.
The euro weakened for a second day against the dollar after the European Union’s statistics office in Luxembourg said gross domestic product in the region declined 1.6 percent from the previous three months, the most in at least 13 years. The EU’s March 5 estimate was for a 1.5 percent contraction.
The euro extended losses after ECB Executive Board member Lorenzo Bini Smaghi said the bank can intervene in the currency market if needed. The euro advanced 4.6 percent in March, increasing concern the 16-nation region’s recession will deepen as exports slump.
“Smaghi seems to be suggesting the euro is beyond the bank’s expected range,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “It’s possible the central bank could intervene. The euro may decline.”
Demand for the yen increased on optimism a finance ministry report tomorrow will show Japan had a current-account surplus in February. The nation posted its first deficit in 13 years in January.
Current Account
“The shrinking current-account surplus was recently used as an excuse to sell the yen,” said Akio Yoshino, chief economist in Tokyo at Societe Generale (Japan) Co., a unit of the French asset management firm that supervises the equivalent of $338 billion. “Signs of change to this trend mean that there is no longer a strong reason to sell the yen.”
Japan had a current-account surplus of 1.07 trillion yen ($10.6 billion) in February, according a Bloomberg News survey of economists. The deficit in January was 172.8 billion yen.
The dollar may rise to its highest level against the yen since August, according to Standard Chartered Bank, citing trading patterns.
The greenback’s weekly chart versus the yen is “bullish” as the dollar is finding support from a rising 50-week momentum oscillator, Callum Henderson, Singapore-based global head of currency research at Standard Chartered, wrote in a note today. At the same time, short-term momentum indicators are “mixed, suggesting consolidation,” he said.
“The dollar-yen is expected to continue to trend higher over the coming three months,” Henderson wrote. “This should target 110, with some potential for 112-113.”
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