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Japanese yen rises in sixth-week high against euro

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The yen strengthened to a six-week high against the euro as Asian stocks fell and Japanese machinery orders unexpectedly declined, adding to signs the global recession is far from over.

The yen rose against all the 16 major currencies for a second day on speculation the worldwide slump will sap corporate earnings, spurring demand for safer assets. South Korea’s won led Asian currencies lower as pessimism about the global recovery damped demand for emerging-market investments. The dollar fell to a five-week low against the yen on concern the greenback’s role as the world’s reserve currency will be questioned at a Group of Eight meeting starting today.

“Worries are mounting that the optimism about the global recovery is overdone,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second- biggest bank. “Investors are risk averse. The yen is becoming the strongest currency, appreciating across the board.”

The yen rose to 131.52 per euro as of 12:41 p.m. in Tokyo from 132.13 yesterday in New York, after rising to 131.20, the strongest since May 22. Japan’s currency advanced to 94.57 per dollar, after climbing to 94.50, the strongest since June 1. The euro traded at $1.3904 from $1.3924. The pound weakened to $1.6085 from $1.6139.

The won dropped for a third day, losing 0.5 percent to 1,278.85 per dollar, as the MSCI Asia Pacific Stock Index slid 1.8 percent and the Nikkei 225 Stock Average fell 2.2 percent. The Standard & Poor’s 500 Index slid 2 percent yesterday.

Machine Orders

The yen stayed higher after a Japanese government report showed machinery orders, an indicator of capital investment in the next three to six months, unexpectedly declined in May. Orders fell 3 percent from April, following a 5.4 percent drop the previous month. Economists expected a gain of 2 percent, according to a Bloomberg News survey.

A separate Japanese report showed the current-account surplus narrowed for a fourth month in May, adding to signs the global economy will take time to recover. The surplus shrank 34.3 percent from a year earlier to 1.302 trillion yen ($13.7 billion), the Ministry of Finance said in Tokyo.

“The market showed a knee-jerk reaction to the poor data and bought the yen as a safe-haven from the global gloom,” said Mizuho Shimozono, a Tokyo-based economist at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group.

Japan’s currency typically strengthens during times of financial turmoil as the nation’s trade surplus means the nation does not have to rely on overseas lenders.

G-8 Meeting

The dollar fell for a third day against the yen before the G-8 meeting commences today in L’Aquila, Italy.

Russia and India have said the world economy is too dependent on the dollar and called for revisions to how $6.5 trillion in currency reserves are managed. “The dollar system or the system based on the dollar and euro have shown that they are flawed,” Russian President Dmitry Medvedev said in an interview with the Italian newspaper Corriere della Sera, repeating his proposal for a new reserve currency.

“There is a possibility that international policy makers will make negative remarks about the dollar,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This may make people reluctant to buy the dollar.”

India should diversify its foreign holdings away from the dollar, Suresh Tendulkar, an economic adviser to Prime Minister Manmohan Singh, said July 3.

Korean Won

The won fell to a one-week low against the dollar after U.S. stocks tumbled yesterday, sending the S&P 500 Index to the lowest level since May 1.

“The Korean won weakened in line with other currencies in the region on the back of stocks in the U.S.” said Callum Henderson, head of global currency strategy at Standard Chartered Plc in Singapore. “The focus will be on corporate earnings in the U.S. this week and next week. Risk is being taken off the table and investors are becoming more defensive.”

Alcoa Inc. today starts the U.S. earnings season as the first company in the Dow average to report results. Analysts estimate profits fell an average 34 percent at S&P 500 companies in the second quarter and will decrease 21 percent from July through September after plunging about 60 percent in the year’s first three months, according to data compiled by Bloomberg.

Pound Falls

The pound declined for a fifth day versus the dollar on speculation the Bank of England will increase its asset-purchase program at its monetary policy committee meeting tomorrow.

The central bank should extend this program to the full 150 billion pounds ($241 billion) authorized by the Chancellor of the Exchequer Alistair Darling and it should seek permission to spend even more, the British Chambers of Commerce said yesterday.

“There is speculation that the MPC could expand its purchases of gilts,” analysts led by David Woo, London-based global head of foreign-exchange strategy at Barclays Capital, wrote in a research note today. “Investor nerves ahead of the meeting may be weighing on the pound.”

The Bank of England will tomorrow stick with its current plan to spend as much as 125 billion pounds in newly printed money to boost the economy, according to a Bloomberg News survey of economists.

Source: Bloomberg

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