Dollar, Yen Gain as China Policy Concern Spurs Refuge Demand

Aug. 27 (Bloomberg) -- The dollar advanced for a fourth day against the euro amid concern restrictions on Chinese production will stifle an economic recovery and as regional shares fell, sparking demand for safe-haven currencies.

The yen rose versus all of its 16 most-active counterparts as risk appetite waned before reports this week forecast to show Japan’s unemployment rate matched a record high and the U.S. economy contracted at a faster pace than initially projected. The Australian dollar sank for a third day against the greenback after crude oil fell, undermining demand for the currencies of commodity producers.

“Uncertainties about China’s policy action, aimed at tackling credit expansion, will continue to be a key driving force of the market,” said Toshiya Yamauchi, a Tokyo-based manager of the foreign-exchange margin trading department at Ueda Harlow Ltd. “Should the Chinese stock market struggle, the safe-haven currencies may strengthen.”

The dollar traded at $1.4232 versus the euro at 9:38 a.m. in Tokyo from $1.4255 yesterday in New York. The yen was at 133.74 per euro from 134.36. The dollar weakened to 93.98 yen from 94.26 yesterday.

The Australian currency was at 82.59 U.S. cents from 82.84 cents. Crude oil, the nation’s fourth-most valuable export, fell for a third day to $71.17 a barrel.

Chinese Policy

China’s cabinet said yesterday it’s studying restrictions on overcapacity in industries including steel and cement as policy makers seek to rein in investment growth fueled by a record credit expansion this year.

“China is a key engine for Asia’s economies, so any curbs on investment would likely undermine a recovery in the region,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Risk aversion will probably increase, leading to buying of the yen and the dollar.”

The Chinese government will also increase “guidance” over parts of the coal, glass and power industries, the State Council said on its Web site yesterday. Controls on stock and bond sales by companies in targeted sectors will be strengthened, it said.

The nation’s benchmark stock index has dropped 15 percent from its Aug. 4 high this year on concern banks may tighten credit after extending a record $1.1 trillion of loans in the first six months.

The Nikkei 225 Stock Average fell 0.8 percent today and the MSCI Asia Pacific Index of regional shares lost 0.3 percent.

Japanese Data

The yen advanced for a third day against the euro as a Bloomberg News survey of economists showed the unemployment rate in Japan rose last month, sapping risk appetite. The rate is forecast to match a record high of 5.5 percent.

Consumer prices excluding fresh food dropped an unprecedented 2.2 percent in July, according to a separate survey. Both reports are due tomorrow.

Adding to concerns that a global recovery will be slow, the U.S. government’s revised figures for second-quarter gross domestic product, due today, may show the economy contracted at a 1.5 percent annual rate, compared with the preliminary showing of a 1 percent fall, according to a Bloomberg News survey.

The pound extended its drop for seventh day versus the euro, the longest stretch of losses since January this year, before a report forecast to show U.K. house prices increased at a slower pace this month.

The average cost of a home climbed 0.5 percent this month following a 1.3 percent rise in July, according to a Bloomberg News survey of economists before the Nationwide Building Society releases the data today.

“Sell sterling,” Sophia Drossos, co-head for global foreign-exchange strategy at Morgan Stanley in New York, said in an interview on Bloomberg Radio. “The economy there is going to lag the rest of the world, so you should buy a currency of an economy that is showing growth and where the central bank is likely to tighten.”