Yen Strengthens as BOJ Says It Will End Emergency Bond Buying
Oct. 30 (Bloomberg) -- The yen rose, set for its firstweekly gain in three, after the Bank of Japan said it will stopbuying corporate debt at the end of the year, as central banksaround the world phase out emergency stimulus spending.
The yen advanced most against the New Zealand and Canadiandollars as investors sold higher-yielding currencies and traderssaid Japanese exporters purchased the currency following itsrecent slide. The dollar headed for a fourth monthly lossagainst the euro, the longest stretch of declines since 2004.
“There’s been a degree of yen buying after the BOJ’sdecision to end some of its support measures,” said LeeHardman, a foreign-exchange strategist in London at Bank ofTokyo-Mitsubishi UFJ Ltd. “A lot of exporters were reluctant tocome in and buy yen at below 90 per dollar and they’ve now comeback to the market,”
The yen strengthened to 90.95 per dollar as of 6:48 a.m. inNew York, from 91.41 yesterday. Japan’s currency was at 135.02per euro from 135.51. The dollar traded at $1.4845 per euro,from $1.4822.
The BOJ decided to end purchases of commercial paper andcorporate bonds from lenders as scheduled, while extendingunlimited collateral-backed lending through March 31, accordingto a statement released in Tokyo today. Policy makers kept thebenchmark interest rate unchanged at 0.1 percent.
BOJ Impact
“The BOJ decision to end corporate bond purchases hasobviously has had an impact,” said Chris Furness, head offoreign-exchange strategy in London at 4Cast Ltd., a researchcompany that counts central banks among its subscribers. “Itshouldn’t have surprised anyone because it’s on schedule, but atthe same time I can see that it would have an impact.”
The yen’s 2.7 percent drop against the euro this month and1.3 percent decline versus the dollar made it more profitablefor companies to convert the proceeds from exports to their owncurrency, according to Lee Wai Tuck, a foreign-exchangestrategist at Forecast Pte in Singapore.
“There’s talk of exporters buying the yen,” Lee said.
Large Japanese manufacturers expected the yen to average94.50 per dollar in the 12 months to March 2010, according tothe Bank of Japan’s quarterly Tankan survey released Oct. 1. Theforecast in the previous report was for a rate of 94.85.
Toyota Motor Corp. and Honda Motor Co., Japan’s two biggestautomakers, may increase overseas production as a stronger yenmakes exports less competitive. Japanese carmakers have lostU.S. market share to South Korea’s Hyundai Motor Co. after theyen rose to a 13-year high against the dollar in January.
‘Liquidity Ample’
Australia’s dollar was set for a record ninth month ofgains after a rally in stocks worldwide and higher prices forcommodities that comprise more than half of the South Pacificnation’s exports.
“The recovery is still at work and the liquidity isample,” said Tomohiro Nishida, a dealer in Tokyo at Chuo MitsuiTrust & Banking Co., a unit of Japan’s seventh-largest bankinggroup. “You can’t stop money flying into higher-yieldingcurrencies at the expense of funding currencies.”
The MSCI World Index of shares advanced 0.4 percent,pushing its gain the past two days to 2.1 percent. The Standard& Poor’s 500 Index increased 2.3 percent yesterday.
The Australian dollar was little changed at 91.54 U.S.cents today, leaving its gain this month at 3.7 percent.
The Dollar Index, which IntercontinentalExchange Inc. usesto track the currency against those of some of the U.S.’sbiggest trading partners, was little changed at 75.888.
Skeptical on Fed
The Commerce Department reported yesterday that U.S. grossdomestic product grew at a 3.5 percent annual pace in the thirdquarter, after shrinking in the previous four periods. Themedian forecast of 79 economists in a Bloomberg survey was foran expansion of 3.2 percent.
The Institute for Supply Management-Chicago Inc.’s businessbarometer probably rose to 49.0 in October, from 46.1 in theprevious month, a Bloomberg survey of economists showed beforethe report today. The ISM’s factory gauge climbed to 53.0 inOctober from 52.6 in the previous month, according to a separateBloomberg News survey before a Nov. 2 report.
Investors remained skeptical that the Federal Reserve willincrease borrowing costs early next year. Fed funds futures showa 34 percent chance that the central bank will lift its targetlending rate at the March meeting from a range of zero to 0.25percent, compared with a 47 percent likelihood a month earlier.
Waiting ‘in Vain’
“Nothing has changed concerning the main reason for dollarweakness, the low yield and the lack of any sign that the Fedmight raise rates,” analysts led by Ulrich Leuchtmann atCommerzbank AG in Frankfurt wrote in a client note today. Nextweek’s Fed policy meeting will probably leave investors waiting“in vain for indications from the Fed that a shift in rates isnear.”
China’s currency needs to strengthen in order to reduceglobal trade imbalances, Harvard economics professor MartinFeldstein wrote in the Financial Times.
Global leaders’ agreement to combat such distortions meansthey must seek to reduce the U.S.’s $500 billion current-accountdeficit and China’s $350 billion surplus, he said.
The yuan was at 6.8275 against the dollar, little changedsince Dec. 31.
To contact the reporters on this story:Lukanyo Mnyanda in London at lmnyanda@bloomberg.net;Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
Last Updated: October 30, 2009 07:12 EDTSource: Bloomberg
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