Yen Weakens on Signs of Economic Recovery, Intervention Concern

Dec. 3 (Bloomberg) -- The yen weakened for a third day against the euro as signs the global economy is recovering damped demand for the relative safety of Japan’s currency.

The yen declined against all of its 16 major counterparts before reports today that economists said will show the decline in European retail sales slowed and U.S. service industries expanded. Japan’s Vice Finance Minister Rintaro Tamaki, who is head of international affairs including currency policy, met with U.S. Treasury officials this week in Washington and they may have discussed the yen’s advance to a 14-year high.

“With the global economy recovering, risk trades will weigh on the funding currencies” such as the yen, said Soichiro Mori, manager of foreign-exchange promotion at FXOnline Japan Co., a margin-trading company. “Higher-yielding currencies will benefit from the liquidity-driven play.”

The yen declined to 132.16 per euro as of 9:18 a.m. in Tokyo from 131.46 yesterday in New York. Japan’s currency fell to 87.66 per dollar from 87.38. It strengthened to 84.83 on Nov. 27, the highest since July 1995. The dollar dropped to $1.5078 versus the euro from $1.5044.

Store revenue in the 16-nation euro region fell 2.4 percent in October following a 3.6 percent drop the previous month, according to a Bloomberg News survey of economists before the European Union’s statistics office releases the data today.

The Institute for Supply Management’s index of non- manufacturing businesses which make up the largest part of the U.S. economy, rose to 51.5 in November from 50.6 in October, according to a separate Bloomberg survey before today’s report.

U.S. Beige Book

The world’s biggest economy expanded or improved “modestly” across the U.S. from October to mid-November as consumer spending rose in a majority of Federal Reserve districts, the central bank said yesterday in its Beige Book.

The Beige Book “provided the dollar with some support as traders priced a bit more Fed tightening in the latter part of 2010,” John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., wrote in a research note today.

Fed funds futures indicated yesterday a 77 percent chance the central bank will raise its target lending rate to at least 0.50 percent by the time of its November 2010 meeting, compared with 60 percent odds a month ago.

U.S. stocks erased earlier losses yesterday following the release of the Beige Book. The Standard & Poor’s 500 Index has jumped more than 60 percent from its 2009 low on March 9 on prospects for a recovery from recession. The Nikkei 225 Stock Average advanced 1.7 percent today, a fourth day of gains.

Tamaki Visit

Japan’s Vice Finance Minister Tamaki met the Treasury officials after the yen reached a 14-year high against the U.S. currency on Nov. 27.

“I can’t imagine that they didn’t bring it up,” though at the same time it’s not “at the front line in terms of top concerns,” said Win Thin, a New York-based currency strategist at Brown Brothers Harriman & Co., referring to intervening in the foreign-exchange market. “The U.S. dollar is in a broad- based swoon but the pace has been deliberate and the rest of asset markets are holding up.”

Japan should ask the U.S. and Europe to take coordinated action to weaken the yen, Financial Services Minister Shizuka Kamei said in an interview in Tokyo yesterday.

“We need international coordination,” said Kamei, whose People’s New Party is a coalition partner to the Democratic Party of Japan. He has urged Finance Minister Hirohisa Fujii to seek international cooperation to halt the yen’s rally.