Thursday, September 3, 2009

Yen Trades Near 7-Week High Before European Retail Sales Report

Sept. 3 (Bloomberg) -- The yen traded near a seven-week high against the euro before a European report estimated to show retail sales fell in July from a year ago, backing the case for the region’s central bank to keep interest rates low.

The yen was also close to its strongest level in seven weeks against the dollar amid speculation a Japanese government report tomorrow will show capital spending declined for a ninth- straight quarter, boosting demand for the relative safety of Japan’s currency. The euro traded near a two-week low against the dollar before today’s meeting of the European Central Bank.

“Risk aversion is prevailing amid worries over the sustainability of the global economic recovery,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The yen may appreciate further.”

The yen traded at 131.64 per euro at 8:38 a.m. in Tokyo from 131.54 in New York yesterday, when it rose to 131.04, the highest level since July 15. The currency was at 92.23 per dollar after earlier climbing to 92.09, the strongest level since July 13. The euro bought $1.4273 from $1.4264. It reached $1.4178 on Sept. 1, the lowest level since Aug. 19.

The 16-nation euro region’s retail sales fell 2.2 percent in July from a year earlier, after a 2.0 percent drop in June, according to a Bloomberg News survey of economists. The European Union’s statistics office will release the report in Luxembourg later today.

The ECB will keep its main refinancing rate at a record low of 1 percent at its meeting today, according to all 58 analysts surveyed by Bloomberg News. Policy makers have cut the benchmark interest rate, flooded banks with cash and started buying 60 billion euros ($86 billion) of covered bonds to revive lending.

U.S. Jobs

The yen appreciated versus the euro yesterday as the payroll report from ADP Employer Services highlighted the risk that consumer spending, which accounts for 70 percent of the U.S. economy, may be slow to gain traction in coming months.

Companies eliminated 298,000 workers in August after a revised drop of 360,000 in the previous month, ADP reported yesterday. The median forecast of 32 economists surveyed by Bloomberg News was for a decrease of 250,000.

“If the fears over the consumer sector elevate and elevate swiftly, that could lead to a bit of equity capitulation, which translates to favorable dollar and yen movements as long as we’re in a risk-relevant environment,” said Jessica Hoversen, a fixed-income and foreign-exchange analyst in Chicago at MF Global Ltd., a brokerage firm.

Employers in the U.S. cut 230,000 workers last month, the smallest decline in a year, according to a separate Bloomberg survey of economists before the Labor Department’s payroll report tomorrow. The unemployment rate is expected to increase to 9.5 percent.

Japan’s Ministry of Finance may say tomorrow that Japanese companies cut capital spending, excluding software, by 23.0 percent in the second quarter, following a 25.3 percent decrease in the previous quarter, another Bloomberg survey showed.