Yen Strengthens to 9-Month High Against Euro on Obama’s Plan

Jan. 22 (Bloomberg) -- The yen gained to a nine-month high against the euro amid concerns that President Barack Obama’s proposal to restrict risk trading at financial institutions will discourage demand for higher-yielding assets.

The Japanese currency was set for a second straight weekly gain versus the euro and a three-week advance against the dollar on speculation Asian stocks will join a global equity slump. Canada’s dollar touched a three-week low as oil slid and investors speculated China will curb its economic expansion.

“Trading restrictions at banks will enhance risk aversion,” said Soichiro Mori, a Tokyo-based strategist at FXOnline Japan Co., a margin-trading company. “This will trigger a flight to safety assets” such as the yen.

The yen advanced to 126.89 per euro at 8:41 a.m. in Tokyo from 127.37 in New York yesterday. The Japanese currency reached 126.56, the strongest level since April 28. It gained to 90.08 per dollar from 90.43 yesterday after reaching 89.87, the highest level since Dec. 18. The U.S. currency traded at $1.4085 versus the euro from $1.4084 yesterday, when it rose to $1.4029, the most since July 30.

Canada’s currency, the loonie, touched C$1.0525, the weakest this year, before trading at C$1.0518. Crude oil slid 2.3 percent yesterday and the MSCI World Index fell 1.5 percent.

The loonie tends to track commodities and equities. The 30-day correlation between the MSCI World Index and the Canadian currency is 0.75. A reading of one would indicate they move in lockstep.

White House Proposals

The dollar slid yesterday against the yen for the first time in four days as Obama called for limiting the size and trading activities of financial institutions as a way to reduce risk taking and prevent another financial crisis.

The proposals will be part of an overhaul of regulations and would prohibit banks from running proprietary trading operations or investing in hedge funds and private equity funds.

The Standard & Poor’s 500 Index lost 1.9 percent yesterday.

The gross domestic product of China, the world’s largest consumer of many of the raw materials, grew 10.7 percent last quarter from the year before, the nation’s statistics bureau said yesterday. That was faster than the 10.5 percent median forecast of economists in a Bloomberg News survey, sparking speculation that China will step up monetary tightening to curve inflationary pressure.