Yen Climbs to 9-Month High Versus Euro

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Yen Climbs to 9-Month High Versus Euro as Global Recovery Slows

Jan. 27 (Bloomberg) -- The yen rose to a nine-month high against the euro and strengthened versus the dollar as speculation the global economic recovery is slowing spurred demand for Japan’s currency as a refuge.

The yen advanced against all of its 16 major counterparts before a report today forecast to show German consumer prices fell this month, signaling Europe’s largest economy is struggling to rebound from recession. The dollar weakened for a second day against the yen on concern the Federal Reserve will maintain its pledge to keep interest rates near zero for an “extended period” when it ends a two-day policy meeting today.

“Risk aversion is strong globally, making it easy for the yen to be bought,” said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second- largest lender. “The yen will remain vulnerable to ups and downs in risk sentiment.”

The yen climbed to 125.52 per euro as of 6:49 a.m. in London from 126.16 yesterday in New York. It earlier rose to 125.30, the strongest level since April 28. Japan’s currency advanced to 89.25 per dollar from 89.65, after reaching 89.14, the strongest since Dec. 18. The euro was little changed at $1.4059 from $1.4072.

German consumer prices, calculated using a harmonized European Union method, fell 0.4 percent this month after rising 0.9 percent in December, according to a Bloomberg News survey before the Federal Statistics Office releases the data today.

Fed Rates

The Fed will keep its key overnight rate in a range of between zero and 0.25 percent today, according to all 93 economists surveyed by Bloomberg. Futures in Chicago show traders have been cutting bets the Fed will raise its target rate by June. The odds for an increase of at least 25 basis points were 21 percent, down from 26 percent odds a week ago.

“Policy makers will maintain the status quo this time,” a negative factor for the dollar, said Takako Masai, general manager of the capital markets division at Shinsei Bank Ltd. in Tokyo. “They are unlikely to change their economic outlook because U.S. economic reports haven’t been good.”

The National Association of Purchasing Management-Chicago business factory index fell to 57 this month from a revised 58.7 in December, according to a separate Bloomberg survey before the Jan. 29 report.

The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders.

Artillery Shots

Japan’s currency also gained after an official with South Korea’s Joint Chiefs of Staff said North Korea fired artillery off its west coast, sparking concern cross-border conflict will hamper the region’s economic recovery.

“The report is adding to risk aversion and causing yen buying,” said Takashi Kudo, general manager of market information service in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.

The Australian dollar rose from near a one-month low against the greenback after a government report showed consumer prices gained more than some economists had forecast, giving the central bank more reason to raise interest rates next week.

The so-called Aussie also climbed against 14 of the 16 most-active currencies as the International Monetary Fund said yesterday Australia will outpace other advanced economies and expand 2.5 percent in 2010 and 3 percent next year.

‘Very Robust’

“The Australian economy is on a very robust recovery path so we don’t really need to have rates as low as they are,” said Justin Smirk, chief economist at St. George Bank Ltd. in Sydney. “The Australia dollar will outperform most other commodity and risk-based currencies over the next 24 hours.”

Australia’s currency advanced to 90.03 U.S. cents from 89.86 yesterday when it dropped to 89.38, the lowest level since Dec. 31.

The euro fell for a second day against the yen on concern fiscal deficits in euro-zone countries will widen, damping demand for European assets.

Luxembourg’s Prime Minister Jean-Claude Juncker, who heads the group of euro-area finance ministers, told French daily Les Echos that divergences in the euro-zone may threaten the cohesion of the area. He also said the euro is overvalued, according to the newspaper.

European Central Bank executive board member Juergen Stark said yesterday in Frankfurt the lender is concerned about ballooning budget deficits in the euro region. Greece still faces a credit downgrade risk even after the nation’s 8 billion- euro ($11.3 billion) debt sale earlier this week, Moody’s Investors Service said yesterday.

“Budget stress in the euro-zone periphery will continue to weigh on the euro, even if there is some investor appetite for non-core bonds at now wider yield spreads,” Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney, wrote in a report. “The euro still appears largely on track to test its next major support line at around $1.3750.”

Bloomberg