Yen on Speculation Worst Financial Crisis is over

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Yen Weakens on Speculation Worst of Financial Crisis Is Over

By Ye Xie and Bo Nielsen

May 12 (Bloomberg) -- The yen and the Swiss franc weakened as a rally in stocks and speculation the worst of the financial crisis is over encouraged investors to buy higher-yielding assets funded in Japan and Switzerland.

Japan's currency dropped versus the dollar for the first time in six days after bond insurer MBIA Inc. reported a narrower first-quarter loss than some analysts estimated. The euro rose the most against the yen since March as President Jean-Claude Trichet of the European Central Bank said its current interest rate policies will keep inflation in check.

``People are trying to take more risk and selling the yen across the board,'' said Hidetoshi Yanagihara, senior currency trader at Mizuho Corporate Bank in New York. ``The worst of the crisis may be behind us.''

The yen decreased 1.4 percent to 161.48 per euro at 4:06 p.m. in New York, from 159.21 on May 9. It was the biggest one- day decline since March 18. Japan's currency dropped 1 percent to 103.93 per dollar, from 102.87. The euro increased 0.4 percent to $1.5538, from $1.5482. The Swiss franc was down 0.7 percent to 1.6229 against the euro and 0.3 percent to 1.0445 versus the dollar.

South Africa's rand advanced against all of the major currencies on speculation Johannesburg-based MTN Group Ltd., Africa's biggest mobile-phone operator, may soon be bought by a foreign company. The rand increased 1.4 percent to 7.6237 against the dollar and 1.1 percent to 11.85 per euro.

Trichet on Inflation

The euro rose against the yen and the dollar as Trichet said in a television interview on Sky TG24 in Milan that the bank's ``present monetary policy stance'' will contribute to achieving its goal of maintaining price stability. The ECB left its main refinancing rate at 4 percent on May 8, saying inflation will remain ``high'' for some time.

The 15-nation currency also got a boost on bets oil near the record will add to inflation pressure in Europe, according to Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. Crude touched the all-time high of $126.40 a barrel before trading at about $125.

The yen dropped 2.5 percent versus the rand, 2.4 percent against the real and 1.5 percent against Norway's krone as the rally in stocks boosted speculation that investors will increase carry trades, in which they get funds in a country with low borrowing costs and invest where returns are higher. The target lending rates of 0.5 percent in Japan and 2.75 percent in Switzerland compare with 11.75 percent in Brazil, 11.5 percent in South Africa and 5.5 percent in Norway.

Stock Gains

The Standard & Poor's 500 Index increased 1.1 percent as MBIA said it has enough money to cover claims from the credit- market crisis, which has caused the world's biggest banks to post $329 billion in losses. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, speaking at a conference in New York sponsored by UBS AG, said the capital markets crisis sparked by last year's collapse of the subprime mortgage market is about 75 percent finished.

Futures on the Chicago Board of Trade show an 88 percent chance the Fed will hold the target lending rate at 2 percent at its next meeting on June 25, up from 82 percent odds on May 9. The balance of bets is for a cut of a quarter-percentage point. There's a 10 percent chance of an increase to 2.25 percent in September. The central bank has lowered the fed funds target 3.25 percentage points since September.

``It's doubtful that the Fed can afford to cut more,'' said Benedikt Germanier, an analyst at UBS AG in Stamford, Connecticut, in an interview on Bloomberg Television. ``We are short on the euro-dollar. Our three-month forecast is $1.47.''

Bullish on Dollar

Traders in the futures market have turned bullish on the dollar versus the euro for the first time since December 2005. The difference in the number of wagers by hedge funds and other large speculators on an advance in the greenback versus the euro compared with a decline, known as net longs, was 21,315 on April 29, figures from the Commodity Futures Trading Commission in Washington show. There were net-short positions in each of the previous 123 weeks. Net longs were trimmed to 12,512 on May 6.

Since touching the all-time low of $1.6019 per euro on April 22, the dollar has rallied 3.5 percent on reduced bets the Fed will lower borrowing costs. The dollar gained momentum as policy makers said after cutting rates on April 30 that ``substantial'' reductions since September would help foster growth. The dollar added to gains after the Labor Department reported on May 2 that U.S. employers eliminated fewer jobs in April than economists forecast.

``It's not going to be an express train toward a much stronger dollar, but it will trade stronger slowly and gradually,'' said Jeff Gladstein, global head of foreign- exchange trading at AIG Financial Products in Wilton, Connecticut. ``The U.S. is not going to have as deep a downturn as everyone initially portrayed.''

To contact the reporters on this story: Ye Xie in New York at Yxie6@bloomberg.net; Bo Nielsen in New York at bnielsen4@bloomberg.net.

The source: http://www.bloomberg.com/apps/news?pid=20601080&sid=aLKaHHrGYi3k&refer=asia