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Japanese yen gains on CIT bankruptcy, Jakarta bombings

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The yen and Treasuries advanced as speculation CIT Group Inc. will file for bankruptcy and blasts in Indonesia’s capital spurred demand for safer assets.

Japan’s currency climbed against 15 of its 16 major counterparts after New-York based CIT, the lender facing insolvency because it failed to obtain U.S. guarantees for its bonds, said it is still in talks to secure financing. Indonesia’s rupiah fell the most in almost two weeks after explosions tore through two hotels in Jakarta, prompting investors to sell emerging-market securities.

“There’s a flight to quality,” said Kazuaki Oh’e, a bond salesman in Tokyo at Canadian Imperial Bank of Commerce, the nation’s fifth-biggest bank. “The global economy is still shrinking, and a bombing makes it riskier to invest in stocks.”

The yen rose to 132.14 versus the euro as of 7:35 a.m. in London from 132.89 yesterday in New York, and climbed to 93.66 per dollar from 93.93. The U.S. currency gained to $1.4089 per euro from $1.4148. The Indonesian rupiah weakened 0.7 percent to 10,195 per dollar, the biggest drop since June 6.

The yield on the benchmark 10-year U.S. Treasury fell two basis points to 3.55 percent, according to data compiled by Bloomberg. The price of the 3.125 percent security maturing May 2019 rose 1/8, or $1.25 per $1,000 face amount, to 96 15/32. The yield increased 25 basis points this week.

Futures on the Standard & Poor’s 500 Index declined 0.3 percent, suggesting U.S. stocks will open trading lower. The Dollar Index, which the ICE uses to track the currency against those of six major U.S. trading partners such as the euro and the yen, rose 0.4 percent to 79.422.

CIT Funds

CIT may need as much as $6 billion to avoid bankruptcy, CreditSights Inc. analysts said yesterday. CIT executives are seeking $2 billion to $3 billion in financing from the private sector, the Wall Street Journal reported, citing unidentified people familiar with the situation.

The yen gained for a second day against the euro as bombs tore through the Ritz Carlton and the JW Marriott hotels in the Indonesian capital, killing at least nine people and injuring 42 others, police said.

The blasts in the two hotels were caused by “high explosives,” said Crisnanda, a spokesman for the South Jakarta police. A New Zealander was among those killed, the government in Wellington said.

“The explosions in Indonesia added to the buying of the yen on risk aversion,” said Takao Yahata, senior manager of foreign exchange and financial-products trading in Tokyo at Mitsubishi UFJ Trust and Banking Corp., a unit of Japan’s largest publicly traded lender by assets.

Exporter Buying

The yen also gained against the dollar on speculation Japanese exporters bought the currency to convert their foreign- exchange earnings before the three-day holiday. Monday is a national holiday in Japan.

“Yen buying by Japanese investors, including exporters, picked up as the yen fell back toward 94 per dollar and beyond,” said Kosei Fujita, a foreign currency dealer in Tokyo at SBI Liquidity Markets Co., a unit of SBI Holdings Inc.

Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey on corporate sentiment and business plans released July 1.

The Dollar Index also rose for the first time in three days after U.S. Treasury Secretary Timothy Geithner reiterated that the Obama administration is committed to a “strong” dollar and curbing record budget deficits to achieve that objective.

‘Special Responsibilities’

Geithner said the dollar’s role in international finance places “special responsibilities” on the U.S. to sustain confidence in its financial system, according to an Internet chat with Les Echos newspaper yesterday.

“This was similar to well-timed comments by top U.S. officials to hold up confidence whenever U.S. stocks looked fragile,” Philip Wee, senior currency economist in Singapore at DBS Group Holdings Ltd., wrote in a research note today. “If so, U.S. officials may find further dollar weakness from here a threat to their efforts to dig the economy out of recession.”

The dollar and the yen still headed for their biggest weekly loss in two months against the euro as stocks advanced worldwide, reducing demand for the U.S. and Japanese currencies as a refuge from the global recession.

“The currencies of emerging markets and resource-rich nations fare well against the dollar and the yen when stocks are on the rising trend, reflecting optimism about the economy,” said Yuji Kameoka, a strategist in Tokyo at Daiwa Institute of Research Ltd., a unit of Japan’s second-largest brokerage group. “The recent retreat in optimism and the re-emergence of risk- aversion may be a blip.”

The Nikkei 225 Stock Average rose 0.6 percent and the MSCI World Index was little changed, having gained 6.4 percent this week, the most since May.

The Canadian dollar appreciated the most of the 16 major currencies against the yen this week, climbing 5.3 percent to 83.76 yen. The Australian dollar advanced 4 percent over the past five days to 74.91 yen.

Source: Bloomberg

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