Yen Rises to 8-Month High on U.S. Growth Concerns, Fed Outlook

By Paul Dobson and Ron Harui
Aug. 4 (Bloomberg) -- The yen advanced to an eight-month high against the dollar on speculation the world’s biggest economy is slowing and the Federal Reserve will announce bond purchases next week to restrain borrowing costs.
Japan’s currency gained versus all 16 major counterparts before U.S. reports this week that economists said will show service industries grew at a slower pace and companies cut workers for a second month, spurring demand for safer assets.
The euro fell for the first day this week versus the dollar.
"Even if we have a decent payrolls report, we still don’t know what the Fed’s going to do and that will engender some support in the yen," said Steven Barrow, head of research for Group of 10 countries at Standard Bank Plc in London. "The market is taking a fairly defensive line."
The yen appreciated to 85.52 per dollar as of 9:29 a.m. in London from 86.79 in New York yesterday, after rising to 85.33, the highest since Nov. 27. Japan’s currency strngthened to
112.85 per euro from 113.50. The dollar traded at $1.3192 per euro from $1.3231.

Spending, Home Sales

The yen strengthened for a second day against the dollar and the euro after U.S. reports yesterday showed consumer spending, home sales and factory orders were all weaker than economists projected. The MSCI Asia Pacific Index of shares fell
0.7 percent.
"There’s an element of risk aversion," said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. "Obviously the market finds the yen attractive, and that’s not going to change in the short term."
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.
Nissan Motor Co., Japan’s third-largest carmaker, is "very concerned" about the yen’s strength, Chief Operating Officer Toshiyuki Shiga told reporters today in Yokohama, Japan.
Toyota Motor Corp., the world’s biggest carmaker, raised its full-year profit forecast today as sales in North America recovered.
The yen’s current level per dollar is stronger than the
90.16 average rate that was estimated by Japan’s large manufacturers for the six months to March 2011 in the Bank of Japan’s Tankan survey released July 1.

Biggest Gainer

Japan’s currency has advanced 11 percent this year against its developed-world counterparts, the biggest gainer of the group, according to Bloomberg Correlation-Weighted Currency Indices. The euro has dropped 7.8 percent, and the dollar has strengthened 1 percent.
An index of U.S. service businesses, which covers about 90 percent of the economy, fell to 53 last month from 53.8 in June, the Institute for Supply Management will say today according to a Bloomberg survey. U.S. companies cut 60,000 workers in July, a separate survey showed before the Aug. 6 report.
"The dollar is weakening against a backdrop of flagging momentum in the U.S. economy and concerns the Fed will maintain its extremely accommodative monetary-policy stance for some time," said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. "This is providing a boost to most of the major currencies, including the yen and the euro."

‘Unusually Uncertain’

Speculation that the Fed will resume bond buying has increased since Chairman Ben S. Bernanke said July 21 that the outlook "remains unusually uncertain." Policy makers will consider on Aug. 10 whether to use cash received from the Fed’s maturing mortgage bonds to buy new mortgage or Treasury bonds, the Wall Street Journal reported yesterday.
"Growing speculation that the Federal Reserve will reintroduce quantitative easing measures is weighing on the dollar," said Phil Burke, chief dealer for global foreign exchange and rates at JPMorgan Chase & Co. in Sydney. "The trend of a lower dollar is still in place."
The euro fell, after trading at a three-month high of
$1.3262 yesterday, as data showed Italy’s services industries contracted in July. An index compiled by Markit Economics fell to 49.6 for July. A reading above 50 indicates expansion.
"There’s a bout of risk-aversion-type sentiment creeping in and that is what’s partially driving the euro," said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. "Italy’s data is on the softer side and that might slightly weigh as well."