By Min Zeng and Ye Xie (Bloomberg)
The yen fell to the lowest since July against the euro as a
rally in Asian stocks and waning concern about a U.S.
recession prompted traders to boost holdings of
higher-yielding assets funded with money borrowed in Japan.
The yen depreciated against 13 of 16 most-actively traded
currencies as minutes from the Federal Reserve's Sept. 18
meeting released yesterday allayed concern a U.S. housing
slump will slow global growth. The euro rose against the
dollar as industrial growth in France and Italy cut
speculation the currency's gains will be featured at the
Group of Seven meeting next week.
``People are selling the yen as risk appetite is coming
back,'' said Michael Malpede, a senior currency analyst in
Chicago at Man Global Research. ``The Europeans don't have
a unified stance to put a cap on the euro's strength.''
The yen fell 0.4 percent to 165.95 per euro at 10:22 a.m.
in New York, earlier touching 166.25, the weakest since
166.32 on July 25. The Japanese currency was little changed
at 117.18 per dollar. It earlier dropped to as low as
117.53. The euro rose 0.4 percent against the dollar to
$1.4163. The European currency set a record high of $1.4283
on Oct. 1.
The yen has declined against all 16 most-active currencies
in the past month as stock indexes in the U.S. and Asia
rallied to records. The yen has lost 5.4 percent this year
against the euro as investors borrow in Japan to buy
higher-yielding assets elsewhere, in a practice known as
the carry trade. At 0.5 percent, Japan's borrowing costs
are the lowest among industrialized nations.
The yen erased its loss against the dollar and pared a
decline versus the euro as U.S. stock indexes fell after
Valero Energy Corp. and International Paper Co. said
third-quarter earnings trailed analysts' estimates. The
Standard & Poor's 500 Index dropped 0.4 percent.
`The Carry Trade'
``People are back to the carry trade,'' said Grant Wilson,
a currency trader with Bank of New York Mellon in
Pittsburgh.
The Swiss franc fell to a record low of 1.6729 per euro
after central bank President Jean-Pierre Roth signaled he
has no plans to raise interest rates from 2.75 percent for
now.
The euro gained against 13 of 16 major currencies today as
signs of growth in the euro region allayed concern that its
7.2 percent rally this year versus the dollar will hurt
exports and growth, dimming speculation its strength will
be mentioned at the G-7 meeting in Washington starting Oct.
19.
French production advanced 0.3 percent in August from the
previous month and Italian output rose 1.3 percent, the
biggest increase in eight months, two government reports
said today. Economists surveyed by Bloomberg News predicted
a decline in France and a 0.6 percent gain in Italy.
EU on Euro
Officials from the 13-country euro region failed to find a
common position on the currency on Oct. 8 as they prepare
for the G-7 meeting. While French President Nicolas Sarkozy
has said the appreciation is hurting European exports,
German Finance Minister Peer Steinbrueck said two days ago,
``I prefer a strong euro.''
French central bank governor Christian Noyer said at a
conference in Riga, Latvia, today the euro's gains show
investors are confident in the region's economic prospects.
``The economy in the euro zone is still holding up very
well, despite a strong euro,'' said Christian Dupont, a
senior currency trader at Societe Generale SA in Montreal.
``Some people are betting that the G-7 meeting won't try to
talk down the euro against the dollar, giving the euro a
boost.''
Bank of Japan Governor Toshihiko Fukui and his colleagues
will leave the overnight lending rate unchanged at the
conclusion of a two-day meeting starting today, according
to economists in a Bloomberg News survey. Australia's
benchmark rate is at an 11- year high of 6.5 percent and
New Zealand's is at a record 8.25 percent.
Dollar-Yen Volatility
One-month implied volatility for the yen versus the dollar
fell to 7.88 percent today, the lowest since July 25, from
8.15 percent yesterday. Dealers quote implied volatility, a
gauge of expectations for currency moves, as part of
pricing options. Lower volatility may encourage carry
trades as it implies less risk from swings in foreign
exchange.
The UBS risk index fell to 0.38 today, the lowest in almost
three months, from 0.54 yesterday, indicating increased
risk appetite.
The risk of owning European financial debt fell to the
lowest since July as credit-default swap traders bet banks
have ridden out the worst of the U.S. subprime mortgage
collapse.
The iTraxx Financial Index, a benchmark for the cost of
protecting bank and insurance company debt against default,
today fell 1 basis point to 21.5 basis points, according to
JPMorgan Chase & Co. The index, used to bet on the credit
quality of lenders such as Deutsche Bank AG, Barclays Plc
and UBS AG, falls as perceptions of creditworthiness
improve.
Asian Currencies
Asian currencies strengthened as Morgan Stanley's index of
Asian equities climbed to a record for a second day. The
Dow Jones Industrial Average and Standard & Poor's 500
Index climbed to records yesterday after minutes from the
Fed's meeting showed policy makers refrained from language
that may have heightened concern the U.S. economy will
contract.
The Singapore dollar climbed to a decade-high after the
central bank kept a policy of seeking a stronger currency
to curb inflation and signaled it will allow ``slightly''
faster gains.
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