Yen Rises on Stock Declines, Japan Opposition Election Victory

Copenhagen - The yen rose to a five-week high against the euro as declines in stocks spurred investors to sell higher-yielding assets and Japan’s change of government stoked speculation foreign investors will put money into the country.

Japan’s currency gained versus all 16 major counterparts after the opposition Democratic Party of Japan swept to power in elections yesterday. The yen climbed to a seven-week high versus the dollar as falling profits at Chinese companies pushed the benchmark Shanghai index down the most since June 2008, boosting demand for Japan’s currency as a refuge.

“The gains in the yen are primarily due to a rise in risk aversion,” said Michael Klawitter, a Frankfurt-based currency strategist with Commerzbank AG, Germany’s second-biggest lender. “People are fully aware that the gains we have seen in risky assets have been too much given the improvements in the economy and everybody is very cautious.”

The yen climbed to 132.52 per euro as of 8:54 a.m. in London, from 133.85 in New York on Aug. 28. It earlier reached 132.16, the strongest level since July 22. The Japanese currency advanced to 92.79 per dollar from 93.60, after touching 92.55, the strongest level since July 13.

The euro fell to $1.4285 from $1.4303 in New York on Aug. 28. The currency bought 88.08 British pence from 87.89 pence at the end of last week.

Chinese Stocks Fall

The yen was set for a monthly advance versus all but the New Zealand dollar among the 16 most-traded currencies on concern investors may trim holdings of emerging-market assets. The Shanghai Composite Index fell 6.7 percent today and the Dow Jones Stoxx 600 Index of European stocks dropped 0.5 percent.

“The slide in China’s equity markets led to buying of the yen,” said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “Investors are still risk averse as they believe the stock rally is excessive as compared with corporate earnings.”

The yen also gained after public broadcaster NHK said the DPJ captured 308 of the 480 lower-house seats.

DPJ President Yukio Hatoyama and his party have pledged to boost child-care spending, cut taxes and curtail the power of bureaucrats after they ended the rule of Prime Minister Taro Aso’s Liberal Democratic Party.

‘Stashed the Cash’

“What appeals to me on the Japan call is that these are the voters who have stashed the cash under the beds,” Tom Murphy, managing partner in Sydney at Family Office Research & Management Ltd., said in a Bloomberg Television interview. “If we get just some increase in investment from the elderly within the population into growth assets of some type, we could see quite a change.”

The yen also climbed amid speculation Japanese exporters purchased the nation’s currency on the last day of the month.

“Exporters possibly bought the yen because of month-end demand,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore.

Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.

The euro is poised for its first back-to-back monthly climb versus the dollar since March 2008 before a German report tomorrow that’s expected to show retail sales in Europe’s largest economy rose for the first time in three months.

German Retail Sales

Sales, adjusted for inflation and seasonal swings, climbed 0.7 percent in July, after a 1.3 percent drop in June, a Bloomberg survey of economists showed before the Federal Statistics Office’s report in Wiesbaden. An index of executive and consumer sentiment in the 16-nation region increased to 80.6, the highest since October, from 76 in July, the European Commission in Brussels said on Aug. 28.

“Recent data have exceeded economists’ predictions, suggesting the euro-zone economy is on a gradual recovery path,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “The trend is for the euro to strengthen.”

Europe’s single currency may reach $1.4500 this week, Nihei said.

The European Central Bank will keep its main refinancing rate at 1 percent at its Sept. 3 meeting, according to all 58 analysts surveyed by Bloomberg.

New Zealand’s Dollar

New Zealand’s dollar fell for a second day versus its U.S. counterpart as central bank Governor Alan Bollard said in a radio interview the currency’s strength is hampering an export- led recovery.

Foreign-exchange traders are increasing bets that Bollard will abandon his pledge to keep interest rates at a record low. New Zealand’s dollar appreciated 3.1 percent this month versus the U.S. dollar on speculation the central bank may raise borrowing costs as soon as March following gains in consumer spending and house prices.

“New Zealand may surprise people as one of the first central banks to tighten,” said David Tien, a money manager at Fischer Francis Trees & Watts in New York, with $19 billion in assets. “If global activities pick up, Asia is best positioned. New Zealand rates should normalize.”

The currency, known as the kiwi, fell 0.3 percent at 68.20 U.S. cents.