Yen Rallies to Seven-Month High as Japan Opposes Intervention

The yen rose to a seven-month high versus the dollar as Japan’s new government reiterated its opposition to intervening to stem a currency’s gain and the Federal Reserve pledged to keep interest rates low.

Sterling dropped to a three-month low below $1.60 this week after Bank of England Governor Mervyn King was quoted by a newspaper as saying the pound’s weakness is aiding in rebalancing the U.K.’s economy. The dollar reached a one-year low versus euro on increased demand for riskier assets before a report next week forecast to show U.S. job losses slowed.

“The yen is getting a benefit from the fact that there is no political intervention, and that it’s not the whipping boy,” said Boris Schlossberg, director of currency research in New York at the online currency trader GFT Forex.


Japan’s yen advanced 1.8 percent this week to 89.64 per dollar, from 91.29 on Sept. 18. It touched 89.51 yesterday, the strongest level since Feb. 5. The currency gained 2 percent to 131.70 per euro, from 134.33 The dollar rose 0.2 percent to $1.4689 per euro, from $1.4712, after touching $1.4844 on Sept. 23, the weakest level since Sept. 22, 2008.

A break in the yen below 89.50 per dollar would “rechallenge” 87.15, wrote Thomas Anthonj, a technical analyst at JPMorgan Chase & Co. in London in a note yesterday. The yen reached 87.13 on Jan. 21, the strongest level since 1995.

Canada’s currency dropped 2 percent to C$1.0910 per U.S. dollar in its biggest weekly loss since June as crude oil, the nation’s biggest export, declined 8.3 percent to $66.07 a barrel. The currency appreciated 12 percent this year.

Bank of Canada

Bank of Canada Governor Mark Carney said he’s concerned when the Canadian dollar moves away from “fundamental” levels, according to the transcript of an interview with the Canadian Broadcasting Corp. released yesterday.

Sterling slid 2.1 percent versus the dollar this week after the Newcastle Journal reported on Sept. 23 that King called the currency’s drop “very helpful.” The pound fell yesterday to $1.5918, the lowest level since June 8, and depreciated to 91.19 per euro, the weakest level since April 1.

Barclays Capital lowered its three-month forecast for the dollar to $1.52 per euro yesterday, from $1.40. “Excess liquidity” stems from a Fed monetary policy that’s “buoying risky assets indiscriminately while punishing” the greenback, wrote David Woo, global head of foreign-exchange strategy in London in a note.

Fed Asset Purchases

The Fed said on Sept. 23 that it would end its $1.45 trillion in purchases of mortgage-backed securities and housing agency debt in March rather than in December and left the fed funds target at zero to 0.25 percent. Policy makers recommitted to keeping the rates “exceptionally low” for an “extended period,” even as the economy shows signs of recovery.

U.S. companies probably cut 180,000 jobs in September, after shedding 216,000 in the prior month, according to the median forecast of 58 economists surveyed by Bloomberg News. The Labor Department is due to release the report on Oct. 2.

The yen advanced against all its major counterparts except the South Korean won as Japan’s Finance Minister Hirohisa Fujii said at the Group of 20 meeting in Pittsburgh on Sept. 24 that he has been questioning the idea of “easy intervention.”

Fujii, whose Democratic Party of Japan took office for the first time this month, referred in comments to reporters to a previous pledge of the nations to refrain from pursuing a currency-devaluation strategy.

Fujii on Yen

“I don’t intend to take a strong yen policy but, at the same time, a deliberate weaker-currency policy was denounced” at the G-20 summit in London earlier this year, Fujii said.

Fujii said last week he didn’t support a “weak yen,” fueling speculation Japan won’t resort to intervention to curb yen’s appreciation. Central banks intervene in foreign-exchange markets by selling and buying currencies.

Japan’s currency rose 3.6 percent to 142.90 versus the pound this week and appreciated 3.8 percent to 6.62 against the Mexican peso.

The yen gained 7.3 percent against the dollar this quarter and advanced 2.7 percent versus the euro. The rally contributed to a 36 percent decline in Japan’s exports in August from a year earlier and weighed on Japanese stocks. The Nikkei 225 Index rose 4.8 percent in the past three months, compared with a 14.2 percent increase in the Standard & Poor’s 500 Index.

The yen’s current level of about 90 per dollar is “painful,” Toyota Motor Corp. Executive Vice President Yukitoshi Funo told reporters yesterday.

Goldman Sachs View

“While policy statements on the yen remain confusing, the tightening in Japanese financial conditions is having a damaging impact,” wrote Dominic Wilson, a senior global economist at Goldman Sachs Group Inc. in New York, in a note to clients yesterday. “The market appears to be voting that the economy ‘needs’ a weaker yen, even if it is not yet getting it.”

The yen also gained on prospects the nation’s exporters will take advantage of an April 1 rule change that waives taxes on repatriated profits. Under previous laws, companies had to pay a combined 40 percent tax on overseas earnings. The first half of Japan’s fiscal year ends Sept. 30.

South Korea’s won rose for a fifth week versus the dollar in its longest winning streak since April as confidence the economy is recovering from a recession helped draw funds from abroad. The won gained 1.8 percent and touched 1,185.30 per dollar yesterday, the strongest level since October 2008. The won increased 0.1 percent to 13.2148 versus the yen.

(Source Bloomberg News)