Tuesday, February 23, 2010

Yen Weakens Amid Speculation Investment Trusts Buying Overseas

Feb. 23 (Bloomberg) -- The yen fell against higher-yielding currencies on prospects Japanese investment trusts will send funds overseas this week.

The dollar dropped against 13 of its 16 major counterparts after U.S. shares declined and Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. economy still needs low interest rates to gain strength. The euro traded near a nine-month low against the dollar as speculation that Greece’s fiscal woes will worsen reduced demand for the 16-nation region’s assets.

“There’s talk that a lot of mutual funds are being set up this week,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole CIB in Tokyo. “It’s a factor for the yen to be sold.”

The yen fell to 124.21 per euro as of 9:33 a.m. in Tokyo from 123.92 yesterday in New York. The Japanese currency weakened to 91.26 to the dollar from 91.14. Europe’s single currency was at $1.3609 from $1.3596. It touched $1.3444 on Feb. 19, the lowest since May 18.

The yen fell against 15 of its 16 most-traded counterparts on speculation Japanese investors are preparing to buy overseas assets. Finance companies are seeking to raise at least 3.8 trillion yen ($41.7 billion) for so-called Toshin mutual funds focused on higher-yielding securities this week, according to Bloomberg data.

Yellen Comments

The benchmark interest rate of 0.1 percent in Japan compares with 3.75 percent in Australia and 2.5 percent in New Zealand, attracting investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits.

Demand for the dollar waned as Yellen said the U.S. economy will operate below potential this year and next.

“When the day comes to start raising rates again, we have tools at the ready,” Yellen said in the text of a speech yesterday in San Diego. “For the time being, the economy still needs the support of extraordinarily low rates.”

Fed Chairman Ben S. Bernanke may tell Congress tomorrow that last week’s increase in the discount rate isn’t intended to drive up borrowing costs.

“Fed rate-hike expectations have continued to ease,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This is providing something of a drag for the dollar.”

Greece ‘Uncertainty’

Amadeu Altafaj, a spokesman for the European Union, told reporters in Brussels yesterday there was no plan to bail out Greece. A rescue package is “a speculative scenario at this point in time,” he said.

European Central Bank Executive Board member Lorenzo Bini Smaghi said he opposes International Monetary Fund assistance for Greece, saying that if Europe doesn’t fix the problem by itself, it won’t be able to prevent the next one. He spoke yesterday in an interview on Italian television channel La Sette.

“Details about any potential aid to Greece remain unclear, adding to uncertainty,” said Takeshi Tokita, vice president of foreign-exchange sales at Mizuho Corporate Bank Ltd. in Tokyo. “The euro will struggle.”