The yen rose toward a seven-week high against the euro on signs the global economic recovery is slowing, supporting demand for Japan’s currency as a refuge.
The yen headed for a weekly gain versus 15 of 16 major counterparts before reports next week that may show U.S. home sales fell, Japanese export growth slowed and German business sentiment weakened. The euro traded near the lowest since July versus the Swiss franc before French President Nicholas Sarkozy meets Finance Minister Christine Lagarde today to prepare for next month’s budget. Australia’s dollar was set for a second weekly loss before a national election tomorrow.
Japan’s currency rose to 109.27 per euro in London from 109.49 in New York yesterday, after reaching 109.02, the highest since July 1. The yen was at 85.31 per dollar from 85.39. The euro traded at 1.3225 francs from 1.3233 francs yesterday, after touching 1.3187 francs, the weakest since July 1. Europe’s common currency slipped to $1.2809 from $1.2823 U.S.
South Korea’s won led Asian currencies lower as the MSCI Asia Pacific Index of regional shares slid 1.3% and Japan’s Nikkei 225 Stock Average lost 1.8%. The won slipped 0.6% to 1,179.75 per dollar.
Purchases of existing U.S. homes fell 13.9% in July, after declining 5.1% in May, economists said before the Aug. 24 report. Japan’s export growth slowed to 21.8% in July from 27.7% in June, and the Ifo institute’s German business climate index slid to 105.5 in August from 106.2 the previous month, separate surveys showed before the Aug. 25 data.
The yen has gained 14% this year, the best performance among 10 developed-world currencies, Bloomberg Correlation-Weighted Currency Indexes show. The currency typically strengthens in times of financial and economic turmoil because Japan’s trade surplus frees the nation from dependence on overseas capital.
Gains in the yen were tempered on speculation the Japanese government will take steps to counter this week’s 1% appreciation versus the dollar.
The probability the Bank of Japan will intervene in currency markets is at a six-year high of 51%, according to a Morgan Stanley model that uses factors such as net positions in Japan’s currency. Japan hasn’t intervened to weaken its currency since 2004.
The yen’s climb to a 15-year high of 84.73 against the dollar on Aug. 11 has stoked concern that exporters’ earnings could weaken and deflation might deepen. Finance Minister Yoshihiko Noda said today he will meet with Prime Minister Naoto Kan next week to discuss the economy and currency.
The euro was poised for a second weekly loss versus the franc as Sarkozy readies France’s 2011 budget along with a bill to increase the retirement age.
Lagarde and Prime Minister Francois Fillon, who will also attend the meeting, have emphasized the need for spending cuts since June. The increase in France’s government debt since the financial crisis has been "significant," Moody’s Investors Service wrote in a quarterly report this week.
Sarkozy has promised to cut France’s deficit to 6% of output next year and 3% by 2013 from about 8% this year. France’s finance ministry is working on the hypothesis that the country’s economic growth in 2011 will be about 2%, daily Le Figaro reported, without citing anyone.
That compares with the government’s current forecast for growth of 2.5%.
Australia’s dollar approached a four-week low versus the yen as polls signaled tomorrow’s election may result in a hung parliament.
The Australian currency fell to 89.06 U.S. cents from 89.27 cents in New York yesterday, heading for a 0.3% loss this week. The currency declined to 75.97 yen, after sliding to 75.70 yen, the lowest since July 22.
