Yen Falls as G-20 Agrees to Cut Deficits Once Recoveries Cement
By Ron Harui
June 28 (Bloomberg) -- The yen fell for the first time in seven days against the euro after Group of 20 leaders endorsed targets to reduce deficits once their economic recoveries are cemented, spurring demand for riskier investments.
Japan’s currency weakened against 15 of its 16 major counterparts after the G-20 said advanced economies will aim to at least halve deficits by 2013 and stabilize debt-to-output ratios by 2016. The dollar fell to the lowest level in almost eight weeks against Switzerland’s franc before U.S. reports this week that economists said will show consumer confidence weakened and manufacturing growth slowed this month.
“The G-20 statement has Europe’s desire for deficit cuts and the U.S.’s for maintenance of economic stimulus, which satisfies both of them,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “There’s some talk of investors looking to sell the yen.”
The yen declined to 110.66 per euro at 10:15 a.m. in Tokyo from 110.41 in New York on June 25. The yen was at 89.31 per dollar from 89.23 last week, when it rose to 89.22, the strongest since May 21. The euro bought $1.2392 from $1.2369. The dollar slipped to 1.0903 francs from 1.0929, after weakening to 1.0897, the lowest since May 4.
South Korea’s won advanced as the MSCI Asia Pacific excluding Japan Index of shares climbed 0.7 percent. The won strengthened 1.4 percent to 1,197.99 per dollar.
G-20 Meeting
The G-20 also said in a statement released as leaders ended their meeting in Toronto yesterday that banks needed to raise capital “significantly” and countries will be allowed to phase in new rules, with a goal of meeting new standards by the end of 2012.
“Honestly, this is more than I expected, because it is quite specific,” German Chancellor Angela Merkel said, referring to the fiscal targets. “It’s a success that industrialized countries as a group accepted this.”
U.S. President Barack Obama said the goal set by the G-20 of cutting deficits in half by 2013 reflects U.S. targets and takes into account the fiscal and economic needs of each nation.
The euro rose for a fourth day against the dollar as traders judged this quarter’s 8.3 percent slide was overdone.
“We’ve clearly had a big move down as far as the euro- dollar exchange rate is concerned,” said Ray Attrill, global research director in Sydney at Forecast Ltd., in a Bloomberg Television interview. “There’s almost like a will in the marketplace to see some stabilization here, so I wouldn’t be surprised if the euro-dollar exchange rate behaves in a relatively benign way in the next month or two.”
Euro Wagers
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 70,974 on June 22, compared with net shorts of 62,360 a week earlier.
Futures positions, when they reach an extreme, are sometimes viewed as a contrarian indicator because traders often seek to cut positions when momentum in a currency shifts.
New Zealand’s dollar traded near its strongest in six weeks on speculation weaker U.S. data will delay any withdrawal of stimulus measures by the Federal Reserve, prompting investors to buy higher-yielding assets.
“There seems to be a reawakening of concerns over how strong the U.S. upturn really is and that’s taking a toll on U.S. bond yields and the dollar,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Further disappointments in U.S. data could see the dollar slide, providing a boost for the likes of the kiwi and Aussie dollar.”
New Zealand’s dollar was at 71.38 U.S. cents from 71.40 cents. It touched 71.60 cents on June 23, the strongest since May 13. Australia’s currency fetched 87.65 U.S. cents from 87.41 cents on June 25, and was at 78.28 yen from 78.02 yen.
U.S. Data
The Conference Board’s confidence index in the U.S. fell to 62.9 in June from 63.3 in May, according to a Bloomberg News survey of economists before the New York-based group’s report tomorrow. The Institute for Supply Management’s manufacturing gauge declined to 59.0 in June from 59.7 in May, another Bloomberg survey showed before the report is released on July 1.
Benchmark interest rates are 4.5 percent in Australia and 2.75 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
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