Yen Falls a Second Day as Risk Sentiment Increases Yield Demand

Tokyo - The yen weakened for a second day against the euro as signs the global economy is improving boosted demand for higher-yielding assets.

Japan’s currency dropped against all of its 16 major counterparts before U.S. reports today that may show retail sales rose for a second month and consumer confidence rebounded. Australia’s dollar headed for a second weekly gain after a report showed China’s exports fell the least in 14 months. The pound strengthened after Moody’s Investors Service said it had no plans to revise its triple A ratings for the U.K.

“Risk sentiment is spreading as the global economy recovers, led by China,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest lender. “Investors will continue to favor higher-yielding currencies over the yen and dollar.”

The yen declined to 130.67 per euro as of 7:35 a.m. in London from 129.94 yesterday in New York, paring its weekly gain to 2.9 percent. The currency fell to 88.72 per dollar from 88.20. The dollar was at $1.4729 per euro from $1.4732.

Australia’s dollar traded at 91.54 U.S. cents from 91.66 cents yesterday, having gained 0.1 percent this week. The currency rose 0.5 percent today to 81.22 yen.

U.S. retail sales rose 0.6 percent in November after climbing 1.4 percent the prior month, according to a Bloomberg News survey before today’s Commerce Department report. The Reuters/University of Michigan preliminary index of consumer sentiment rose to 68.8 for December from 67.4 a month earlier, according to a separate Bloomberg survey before today’s report.

Risk Sentiment

“A good U.S. retail sales figure would probably lead to positive risk sentiment,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “Such a result is likely to support the crosses against the yen.”

The Nikkei 225 Stock Average gained 2.5 percent and the MSCI Asia Pacific Index of shares advanced 0.8 percent after the Standard & Poor’s 500 Index climbed 0.6 percent yesterday..

Australia’s currency strengthened for a second day against the yen as reports showed declines in China’s exports slowed, industrial output rose more than expected and imports surged. China is Australia’s main trading partner.

Chinese exports fell 1.2 percent in November from a year earlier and imports surged 26.7 percent, the government said today. The rate of decline in overseas shipments was the least since October 2008.

‘Strong’ Figures

“Strong headline figures from China, which now holds the key to assessing the health of the global economy, enhance risk trades,” said Koichi Kurose, chief strategist in Tokyo at Resona Bank Ltd. “This may then support capital inflow into countries like Australia that benefit from a recovery in the Chinese economy.”

China’s statistics bureau also said today that industrial production grew 19.2 percent in November from a year earlier. That compared with a 16.1 percent increase in October.

Benchmark interest rates are 3.75 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

The pound rose the most in a week against the yen and the dollar after Moody’s Investors Service said it has no current plans to lower its top debt ratings on the U.K. and the U.S.

‘Stable’ Outlook

“The outlook is stable” for the two countries, Moody’s Senior Vice President Tom Byrne said in an interview in Singapore today. Byrne was citing comments by Steven Hess, vice president and senior credit officer of the sovereign ratings group for the company, made in a teleconference today.

The pound gained 0.7 percent to 144.56 yen, and rose 0.1 percent to $1.6292. The currency dropped 2.2 percent against the yen on Dec. 8 after Moody’s said its ratings on the U.S. and the U.K. may “test the Aaa boundaries.”

“A rating warning from Moody’s drove the pound lower earlier this week and soothing comments from the same company triggered a knee-jerk buy-back of the currency today,” said Kazumasa Yamaoka, a senior analyst in Tokyo at GCI Capital Co., a foreign-exchange margin-service company.

The euro headed for a second weekly decline against the dollar, the longest stretch in two months, on speculation the credit ratings of more European nations will be lowered.

Spain had the outlook on its debt grade cut to “negative” from “stable” by Standard & Poor’s this week on its public finances. Greece’s credit ranking was reduced one step to BBB+ by Fitch Ratings and Portugal’s outlook was revised to “negative” from “stable” by Standard & Poor’s.

“There are lingering concerns about the health of the eurozone,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “These worries are taking the shine off the euro.”