Yen Strengthens on Speculation Japanese Companies Are Repatriating ...
Sept. 25 (Bloomberg) -- The yen climbed, heading for aweekly advance against the euro, on speculation Japaneseexporters repatriated profits before the fiscal first half endsthis month.
The dollar pared a weekly gain against the euro afterReuters said a draft communiqué by Group of 20 leaders pledgedto maintain stimulus measures. The pound was set for a thirdweekly loss against the euro after a newspaper reported thatBank of England Governor Mervyn King said the currency’s dropwould help the economy rebalance.
“Fund repatriation is a seasonal factor that is supportingthe yen at the moment,” said Carl Hammer, a senior currencystrategist at SEB AB in Stockholm. “Also, there seems to bemore acceptance among Japanese authorities for yen appreciation.But in my view, the yen is looking expensive.”
Japan’s currency strengthened to 132.91 yen per euro as of9:09 a.m. in London, from 133.86 yen in New York yesterday,after earlier reaching 132.53 yen, the highest level since Sept.16. It appreciated to 90.58 yen per dollar, from 91.27 yen.
The dollar was at $1.4676 per euro, from $1.4666 yesterdayin New York and $1.4712 a week ago. That would be the firstweekly advance since the period ended Sept. 4.
The G-20 also agreed to take steps to restrict excesses inthe financial industry and cooperate on increasing capitalstandards for banks, Reuters said, citing the draft report. TheG-20 kicked off a two-day meeting yesterday in Pittsburgh.
Profit Repatriation
“World leaders probably want to keep stimulus steps inplace until the recovery proves to be sustainable,” saidAkifumi Uchida, deputy general manager of the marketing unit atSumitomo Trust & Banking Corp. in Tokyo. “The trend for risktaking is likely to persist, with the dollar prone to weaken.”
Japan’s currency was set for a weekly advance versus 14 ofits 16 major counterparts on prospects the nation’s exporterswill take advantage of an April 1 rule change that waives taxeson repatriated profits. Under previous laws, companies had topay a combined 40 percent tax on overseas earnings. The firsthalf of Japan’s fiscal year ends Sept. 30.
Japanese exports fell 36 percent in August from a yearearlier, the Finance Ministry said yesterday, an 11th-straightdecline. The drop was exacerbated by the yen’s 18 percent surgeagainst the dollar in the past year, making Japanese goods moreexpensive abroad and lowering the value of repatriated earnings.
Toyota Motor Corp. Executive Vice President Yukitoshi Funosaid today the Japanese currency’s “current level around 90 yenis a bit painful. I think the yen should be a little weaker.”Toyota, the world’s largest automaker, forecasts a 450 billionyen ($5 billion) net loss for the year ending March 2010.
‘Very Helpful’
Large manufacturers expected the yen to trade at an averageof 94.85 per dollar in the 12 months to March 2010, according tothe Bank of Japan’s quarterly Tankan survey released July 1.
The pound reached the lowest level in more than five monthsagainst the euro after the Newcastle Journal cited BOE governorKing as saying the U.K. currency’s drop is “very helpful” tothe process of rebalancing the British economy.
“The pound was the star of all the currencies that felltoday,” said Takashi Kudo, director of foreign-exchange salesin Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph &Telephone Corp.
The pound declined to as low as $1.5918 today, the weakestsince June 8, from $1.6059 yesterday in New York. The U.K.currency depreciated to 91.67 pence per euro, reaching thelowest level since April 1.
The dollar rose earlier after Federal Reserve GovernorKevin Warsh said the U.S. central bank may need to be asaggressive in reversing money-easing actions as policy makerswere in starting them.
‘Whatever it Takes’
“If ‘whatever it takes’ was appropriate to arrest thepanic, the refrain might turn out to be equally necessary at astage during the recovery to ensure the Federal Reserve’sinstitutional credibility,” Warsh said in an opinion pieceposted late yesterday on the Wall Street Journal’s Web site.
His comments followed statements by the Federal Reserve andU.S. Treasury that they’re scaling back emergency programs aimedat combating the financial crisis, reducing support for firmsthat now have an easier time getting funding.
European policy makers are also moving to paring backmonetary stimulus. The European Central Bank said it willdiscontinue its 84-day U.S. dollar liquidity-providingoperations with the Fed “given the limited demand and theimproved conditions in funding markets.” The ECB will keepconducting seven-day dollar operations.
Carry Trades
“The announcements by these central banks triggeredbuybacks of the dollar, which was used to finance investments onriskier assets,” said Fumio Mizutani, a currency analyst atcurrency-margin company ODL Japan Co. “We now need to carefullyascertain whether this action will affect dollar-carryinvestments.”
In carry trades, investors borrow in a nation with lowinterest rates and invest where returns are higher. The risk insuch trades is that currency market moves will erase profits.
Benchmark interest rates are 2.5 percent in New Zealand and3 percent in Australia, compared with 0.1 percent in Japan andas low as zero in the U.S, making investments in the SouthPacific nations’ comparatively attractive.
To contact the reporters on this story:Anchalee Worrachate in London at aworrachate@bloomberg.net;Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
Last Updated: September 25, 2009 04:27 EDTSource: Bloomberg
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