Yen Weakens as Asian Stock Gains Spur Demand for Higher Yields

Tokyo -- The yen weakened for the first time in three days against the euro and the dollar as stocks advanced after Japanese companies reported improved earnings, reviving demand for higher-yielding assets.

The pound approached a nine-month high against the dollar before the Bank of England’s policy meeting today at which economists say the central bank will leave its benchmark interest rate at 0.5 percent. Australia’s dollar rose toward the strongest level since October against the yen after a government report showed the South Pacific nation unexpectedly added workers in July.

“Hopes are rising among people that things are getting better,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “They’re putting funds into emerging markets such as South Africa, as well as into Australia, because those nations are resource-rich and have higher yields. This leads to buying of their currencies and selling of the yen.”

The yen fell to 137.10 per euro as of 7:44 a.m. in London, from 136.79 yesterday in New York. Japan’s currency dropped to 95.14 per dollar from 94.97. The greenback was little changed at $1.4411 per euro after declining to $1.4447 yesterday, the weakest since Dec. 18. The pound rose to $1.6996 from $1.6989.

The Australian dollar climbed to 84.35 U.S. cents from 84.06 cents, and strengthened to 80.37 yen from 79.82 yen.

Stock Gains

Japan’s Nikkei 225 Stock Average closed up 1.3 percent at the highest since Oct. 6, while the MCSI Asia Pacific Index of regional shares advanced 0.8 percent.

TDK Corp., the world’s biggest maker of magnetic heads for disk drives, said today it had a net loss of 3.22 billion yen ($33.8 million) in the three months to June 30, less than the 4.76 billion yen loss forecast in a Bloomberg News survey of analysts. Sumitomo Realty & Development Co., Japan’s third- largest developer, said its net income rose to 17 billion yen in the same quarter from 12.1 billion yen a year earlier.

The VIX Index, a measure of stock-market volatility known as Wall Street’s fear gauge, fell to as low as 24.86 yesterday, the least since July 28.

Australia’s dollar approached this year’s high of 80.83 yen reached on Aug. 4 after the statistics bureau said the number of people employed unexpectedly rose 32,200 from June. The median estimate of economists surveyed by Bloomberg was for a decline of 18,000.

Japan’s currency weakened against 15 of its 16 major counterparts after a Ministry of Finance report showed the nation’s investors bought 10.2 billion yen more overseas stocks than they sold last week.

Recession Concern

Losses in the yen were tempered after U.S. reports yesterday added to doubts the recession in the world’s largest economy is easing, boosting demand for safer assets.

“Investors are very cautious of the U.S. recovery and whether it will be sustained,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “From this level we need more evidence of recovery in the U.S. economy. If the U.S. employment numbers are bad, the yen will strengthen to 93 per dollar.”

U.S. companies cut an estimated 371,000 workers from payrolls last month after a revised reduction of 463,000 in June, ADP Employer Services said yesterday. The median forecast of economists in a Bloomberg News survey was for a drop of 350,000. The Labor Department will today release data on U.S. initial jobless claims for last week, and tomorrow will announce its July payroll report.

British Pound

The pound strengthened for a sixth day versus the dollar, the longest winning streak in three months, after U.K. reports yesterday showed services expanded the most in 1 1/2 years, manufacturing unexpectedly rose and home prices jumped.

The Markit Economics purchasing managers’ index for U.K. services rose to 53.2 in July from 51.6 in June. Factory output climbed 0.4 percent in June, the U.K.’s statistics office said. Lloyds Banking Group Plc’s Halifax division said home values jumped almost twice as much as economists forecast last month.

“Any discussion around policy will become much more optimistic because the world economy is on a path to recovery,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “You’re seeing that, in particular, in the case of the U.K., where you’ve had manufacturing and service PMIs showing sharp rebounds. Sterling should be an outperformer.”

Eight of 12 primary dealers surveyed by Bloomberg said the U.K. central bank will end a five-month program of bond purchases after announcing a pause at its policy meeting today.

The Bank of England will keep its main rate at 0.5 percent and the European Central Bank will maintain its benchmark at 1 percent, according to Bloomberg News surveys of economists.