Japanese yen rises most since May

The yen rallied the most against the euro since May and the dollar advanced as speculation the global recovery will be slow encouraged demand for a refuge.

South Africa’s rand and the Australian dollar were among the biggest losers against the yen this week, dropping at least 5 percent as crude oil slumped below $60 a barrel and other raw materials fell. Leaders of the world’s biggest developed and emerging nations agreed to “refrain from competitive devaluations” at a summit in Italy while avoiding a debate over the dollar’s reserve-currency status.

“Risk aversion is going to make a strong comeback, and the yen could outperform even more,” said Patrick Bennett, a currency strategist in Hong Kong at Societe Generale SA, in an interview on Bloomberg Television. “Risk currencies in particular have got way ahead of where the global economic outlook is.”

The yen appreciated 4.1 percent to 129.00 per euro, from 134.26 on July 3. Japan’s currency touched 127.02 on July 8, the strongest level since May 18. The dollar gained 0.3 percent this week to $1.3936 per euro, from $1.3980. The yen advanced 3.8 percent to 92.54 per dollar, from 96.04. It reached 91.79 yesterday, the strongest level since Feb. 17.

The advance of the yen against the euro was the biggest since the five days ended May 15, when it appreciated 4.5 percent. The currency’s increase versus the dollar was the largest since the week ended Oct. 24.

Fifteen Minutes

The yen rallied 2.2 percent versus the dollar on July 8, appreciating from 94.25 to 92.75 in 15 minutes.

A “technical unwind” of derivative contracts led the yen to pierce a level where traders had placed pre-set orders to buy back the currency, pushing it higher, said Richard Clarida, a strategic adviser in New York at Pacific Investment Management Co., the world’s biggest bond-fund manager, in an interview on Bloomberg Radio.

“It was an eye opener,” he said. “In my professional career, I can maybe think of only 3, 4, 5 times in the last 25 years when you had a 2 percent move in 15 minutes.”

Japan’s Vice Finance Minister Kazuyuki Sugimoto said at a press conference in Tokyo this week that the government will keep watching currency markets closely.

Australia’s dollar lost 5.8 percent to 72.07 yen, the biggest weekly drop since October, as crude oil plunged more than 10 percent and on speculation Japanese investors lost appetite for overseas assets. Crude oil is Australia’s fourth- biggest export.

Weaker Rand

The rand slumped 7.3 percent to 11.24 yen in its biggest weekly decline since May. Prices of commodities, such as platinum and gold, account for 30 percent of South Africa’s export earnings.

The ruble slid as much as 3.2 percent yesterday to 32.8190 against the dollar, its biggest drop in almost five months and the largest decline among emerging-market currencies, after the central bank lowered the refinancing rate to 11 percent. For the week, ruble lost 4.4 percent.

Leaders of the Group of Eight industrialized countries and the Group of Five emerging nations agreed not to devalue their currencies to promote their exports at a summit in L’Aquila, Italy, this week. They also agreed to “promote a stable and well-functioning international monetary system.”

Barclays Capital lowered its one-month forecast for the dollar against the yen to 96 from 98 “in light of recent price action.” It maintains that the drop of the dollar this week is “temporary” as the global economy continues to “improve,” while the Japanese outlook is too “fragile” to sustain a stronger currency, strategists Yuki Sakasai in Tokyo and Paul Robinson in London wrote in a note to clients yesterday.

‘Relatively Quick’

Investors have been “relatively quick” to cut their losses in commodity currencies, such as the Australian dollar, setting the stage for a rebound on “improving fundamentals,” according to Barclays.

The yen and dollar gained versus the euro yesterday as a gauge of confidence among U.S. consumers dropped in July after four months of increases. The Reuters/University of Michigan index of consumer sentiment fell to 64.6 from 70.8 last month. The median forecast of 59 economists surveyed by Bloomberg News was for a decrease to 70.

U.S. retail sales rose 0.4 percent in June, slowing from 0.5 percent in the previous month, according to the median forecast of 48 economists surveyed by Bloomberg News. The report from the Commerce Department is due on July 14.

“At the end of the day the question is what’s driving growth, and the answer is zippo,” said Jessica Hoversen, a foreign-exchange analyst in Chicago at MF Global Ltd., a broker of exchange-traded futures.

Goldman Sachs’s View

Goldman Sachs Group Inc. lowered its forecast this week for the dollar versus major counterparts in the next three months, while boosting its one-year estimate as “aggressive” easing by the Federal Reserve comes to an end.

The dollar will decline to $1.45 per euro before appreciating to $1.35, according to Goldman Sachs’s forecast. The dollar will appreciate to 98 yen in three months and 105 by July 2010, according to the bank.

Source: Bloomberg

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