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Japanese yen slumps

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The yen weakened for a third day against the euro as signs the world may be emerging from the steepest global slump in 50 years spurred demand for higher- yielding assets.

The Australian and New Zealand dollars rose the most against the yen and the greenback as Asian stocks headed for their biggest advance in a week. The yen declined against all 16 major currencies after an index of U.S. leading economic indicators rose in May for a second month and a regional factory gauge increased more than forecast in June.

“We have seen some encouraging news about the global economy in the last 24 hours,” said Danica Hampton, a currency strategist in Wellington at Bank of New Zealand Ltd., the nation’s third-largest bank. “There’s been some relatively promising data out of the U.S. This is helping underpin” currencies against the yen.

The yen declined to 134.46 against the euro as of 12:10 p.m. in Tokyo from 134.17 yesterday in New York. Japan’s currency fell to 96.62 per dollar from 96.47. It dropped 0.4 percent to 61.68 per Australia’s dollar and lost 0.2 percent to 61.70 to the New Zealand dollar. The euro traded at $1.3916 from $1.3900.

The Federal Reserve Bank of Philadelphia’s general economic index climbed yesterday to minus 2.2 from minus 22.6 in May. The Conference Board’s index of U.S. leading economic indicators also rose more than forecast in May for the second month.

China, Japan

The World Bank yesterday raised its growth forecast for China this year, saying the Asian economy will expand 7.2 percent in 2009 from a year earlier, up from a 6.5 percent forecast in March. Japan’s government and central bank this week raised their assessments of the economy for a second month after industrial production advanced at the fastest pace in 56 years and exports improved.

The yen still headed for weekly gains versus the dollar and the euro after U.S. reports earlier this week showed confidence among homebuilders fell unexpectedly in June and industrial production dropped for a seventh month in May, raising concerns any recovery by the world’s largest economy will take time.

Japan’s currency rose 2.7 percent versus the euro this week, the most since the five days to May 15, and advanced 1.9 percent against the greenback, the biggest jump in five weeks.

“The return of worries about the economic recovery helped boost the U.S. dollar and this weighed on commodity prices and the Australian dollar,” Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which manages about $95 billion, wrote in a note today. “The Australian dollar is vulnerable to a further period of correction as investors wait for fundamentals to catch up.”

The Australian dollar declined 1.4 percent this week to 80.03 U.S. cents, and lost 3.3 percent to 77.31 yen.

Dollar Index

The Dollar Index rose yesterday after the British Bankers’ Association said it may allow more institutions to take part in the daily survey that sets the London interbank offered rate, the benchmark for more than $360 trillion of financial products around the world.

“Smaller banks may contribute higher rates, so Libor would likely go up,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Hence, the dollar’s borrowing costs would increase, which is supportive of the greenback.”

The BBA will make a further statement today, Brian Mairs, London-based spokesman for the association said by e-mail yesterday. Banks without a physical presence in London may apply to join the panel of members that contribute to the Libor- setting process, the BBA said.

The Dollar Index, used by the ICE to track the currency against those of six major trading partners, was little changed at 80.550 after gained 0.5 percent yesterday.

ECB Rates

The euro also strengthened against the dollar and yen on speculation European Central Bank officials speaking today will signal they intend to keep interest rates on hold amid signs the global slump is waning.

Asian stocks rose, with the MSCI Asia-Pacific Index of regional shares gaining 0.2 percent and the Nikkei 225 Industrial Average climbing 0.3 percent.

“The euro-dollar is set to resume the recovery as investor confidence is restored,” analysts led by Hans-Guenter Redeker, London-based global head of global strategy at BNP Paribas SA, wrote in a note yesterday. “An equity rebound will be the trigger for the next move higher by currencies.”

ECB members including Mario Draghi and Lorenzo Bini Smaghi speak today. The central bank kept its benchmark rate at a record low of 1 percent on June 4. President Jean-Claude Trichet said the ECB hadn’t decided it was the lowest rates could go.

Source: Bloomberg

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