Yen Rallies as Japan's Radiation Concern Spurs Insurer Repatriation Bets
March 15 (Bloomberg) -- Benjamin Collett the head of Japanese equities at Louis Capital Markets (Hong Kong) Ltd., talks about the outlook for Japanese stocks and the yen. He speaks with Francine Lacqua on Bloomberg Television's "On The Move." (Source: Bloomberg)
The yen rose against all of its major counterparts as risk in Japan of radiation leaks from crippled nuclear power stations boosted speculation that insurers will repatriate assets to pay for earthquake damages.
The dollar rose against the euro and the Swiss franc advanced to a record against the greenback on demand for a refuge as Japan’s Prime Minister Naoto Kan said his government is doing everything it can to contain the radioactive leaks following last week’s earthquake and tsunami. The euro slid as European Central Bank President Jean-Claude Trichet called “insufficient” a package of economic-oversight rules adopted by European Union finance ministers.
“The yen is strengthening across the board,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “We’re seeing follow-through yen buying off of renewed risk aversion emanating from Japan.”
The yen appreciated 1.3 percent to 112.76 versus the euro at 11:08 a.m. in New York, from 114.22 yesterday. The yen advanced 1 percent to 80.83 per dollar, from 81.63. The Japanese currency strengthened to 80.22 Nov. 1, the strongest since April 1995, when it reached a postwar record of 79.75.
The dollar strengthened 0.3 percent to $1.3950 against the euro, from $1.3992.
Fed Meets
The Federal Reserve will release its interest rate decision at the end of its meeting today. Policy makers are almost certain to fulfill their plan to buy $600 billion in Treasuries, a survey of economists shows. How they finish the purchases and what they do next is a matter of disagreement.
Of 50 economists surveyed by Bloomberg News last week, 49 said the Fed will buy the full amount of bonds in a bid to boost the economy. Thirty-one said the central bank won’t adjust the pace or duration of the purchases, as it did in the first round of quantitative easing in 2009-10.
Stocks sank, with the Nikkei 225 index posting its biggest two-day drop since 1987. The MSCI World Index fell 2.9 percent while the Standard & Poor’s 500 Index lost 2 percent.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, rose as much as 0.9 percent to 77.04 in the biggest intraday gain since Feb. 3.
Swiss Record
The franc appreciated 0.7 percent to 91.76 centimes per dollar after touching 91.64, the strongest level since at least 1971, when Bloomberg records begin.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most traded currencies excluding the yen, dropped to the lowest level this month on concern related to Japan’s earthquake.
Currencies of commodity-exporting countries plunged as speculation increased the explosions at the nuclear power station will damp demand for raw materials.
South Africa’s rand, the worst performer among the major currencies, dropped 2.4 percent to 6.9790 per dollar.
Australia’s dollar weakened 2.1 percent to 98.86 U.S. cents and Canada’s currency fell 1.2 percent to 98.52 cents per U.S. dollar.
“It’s increasingly alarming, the state of the situation in Japan,” said Paul Mackel, a currency strategist at HSBC Holdings Plc in London. “When the market goes into a very aggressive risk-off move, these currencies tend to underperform.”
Plant Efforts
Japan’s stricken Dai-Ichi nuclear power plant was rocked by three further explosions and a fire today as workers struggled to avert the risk of a meltdown.
Appetite for haven assets was boosted after Bahrain declared a three-month state of emergency as a second contingent of forces from Gulf states poured into the kingdom to support its government following persistent protests.
Further gains in the yen may be limited as the Bank of Japan pumps more money into financial markets, according to analysts at BNP Paribas SA.
“The BOJ will have to take a bigger responsibility to fund the rebuild of the Japanese economy, suggesting it will intensify its quantitative-easing program,” BNP analysts including Hans-Guenter Redeker, global head of currency strategy in London, wrote in an e-mailed report today. “The projected boost of the BOJ’s balance sheet should work against the yen.”
Central Bank
The BOJ added 5 trillion yen to the financial system in a one-day operation today. BOJ Governor Masaaki Shirakawa has pledged to keep pouring cash into the economy to stabilize markets. The bank injected 15 trillion yen ($6 billion) yesterday and doubled its asset-purchase program to 10 trillion yen, an increase that’s about one-tenth the size of the Fed’s program of buying Treasuries.
ECB President Trichet was critical as euro-zone leaders negotiated an accord to allow primary-market bond purchases that will offer a lifeline to aid recipients in return for austerity commitments.
“We continue to think that the improvement in governance that is presently envisaged is in our opinion insufficient to draw the lessons from the crisis,” Trichet told ministers at a meeting in Brussels today where the measures were approved.
A final agreement is slated for a summit on March 24-25.
Citigroup Inc.’s technical strategy division reversed some of its bets on the euro. It said in a note to clients that it exited its long euro-dollar position at $1.3870 and its long euro-yen position at 112. A long position is a bet the price of an asset will rise.
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