Yen Rallies as Italy Rekindles Debt Crisis Concern; Aussie Drops

By Mariko Ishikawa & Candice Zachariahs 

The yen strengthened against all of its 16 major peers as signs Europe’s debt crisis is deepening boosted demand for haven assets.

Japan’s currency rose versus the euro as Asian stocks extended a global rout before data this week forecast to show Europe’s economy contracted. The yen gained even after the nominee to become the next Bank of Japan (8301) governor pledged more monetary easing to defeat deflation. The euro traded 0.4 percent from the lowest in almost three months against the greenback as Italy edged closer to a new election. Australia’s dollar sank to a five-month low after building approvals declined.

“The risk-off environment and uncertainties about Europe permeating the market at the moment are adding to demand for the yen,” said Jim Vrondas, the Sydney-based chief currency and payment strategist at OzForex Ltd. “Traders are being squeezed out of positions betting on yen declines and we think this yen strength has longer to run as they continue to unwind positions.”

The yen strengthened 0.1 percent to 93.47 per dollar at 2:32 p.m. in Tokyo, rallying from its 1.9 percent loss in the previous four sessions. It gained 0.1 percent to 121.72 per euro. The euro traded little changed at $1.3025 from the end of last week, when it touched $1.2967, the lowest since Dec. 11.

The MSCI Asia Pacific Index of stocks fell 0.7 percent, following a 0.2 percent slide in MSCI’s World Index on March 1.

The euro area’s gross domestic product probably fell 0.6 percent in the fourth quarter from the previous three-month period, according to the median estimate of economists surveyed byBloomberg News before the data on March 6.

‘Soft’ Activity

Figures last week showed the currency bloc’s jobless rate rose to a record 11.9 percent in January and the region’s inflation rate fell below the European Central Bank’s 2 percent ceiling for the first time in more than two years. ECB President Mario Draghi and his board will meet on March 7.

In Rome, a top aide to Democratic Party leader Pier Luigi Bersani said the country may need to hold another election this year after last week’s vote ended in a four-way split. The electorate revolted against German-inspired austerity measures, handing the party of comedian-turned-politician Beppe Grillo more than 25 percent of the vote with its anti-spending cut message and a call for a referendum on euro membership.

“What Europe is faced with is growth numbers that aren’t attractive, unemployment that’s getting worse and the Italian situation which remains unclear,” said Alex Sinton, director of institutional foreign exchange in Auckland at Australia & New Zealand Banking Group Ltd. (ANZ)“The market really hasn’t got many reasons to turn the weakness in euro around at the moment.”

Euro Shorts

Futures traders are betting the euro will weaken against the dollar, reversing to a net-short position of 9,394 contracts as of Feb. 26, figures from the Washington-based Commodity Futures Trading Commission showed. The week before, large speculators held a net-long position of 19,103 contracts.

“Soft European activity and falling inflation has raised speculation the ECB could respond with more easing measures,” Mike Jones, a currency strategist at Bank of New Zealand in Wellington, wrote in a note to clients today. Any suggestion from Draghi that a rate cut is being contemplated would probably send the euro “barreling back below $1.30.”

The yen tends to strengthen during periods of financial and economic turmoil because Japan isn’t reliant on foreign capital to fund its deficits. The currency has slid 17 percent in the past six months, the most among 10 developed market currencies measured by Bloomberg Correlation-Weighted Indexes, as Japan’s Prime Minister Shinzo Abe pressured the central bank to expand easing measures.

BOJ Purchases

Haruhiko Kuroda, Abe’s pick to run the central bank, said in parliament today that the BOJ will do whatever is needed to end 15 years of deflation, including an early start to open- ended asset purchases. The BOJ announced those steps in January, deferring them till next year.

“I would like to make my stance clear that we will do whatever we can do,” Kuroda, the president of the Asian Development Bank, said at a confirmation hearing today.

Abe has nominated Kikuo Iwata, an economics professor who backs greater government oversight of monetary policy, and BOJ Executive Director Hiroshi Nakaso for two deputy governor posts.

“Kuroda’s speech highlighted the BOJ’s strong commitment to defeat deflation,” said Yunosuke Ikeda, the head of foreign- exchange strategy at Nomura Securities International in Tokyo.

The so-called Aussie dollar fell after an unexpected drop in home-building approvals in January added to speculation the Reserve Bank will cut interest rates this year.

The number of permits granted to build or renovate houses and apartments declined 2.4 percent from December, when they fell a revised 1.7 percent, the Bureau of Statistics said in Sydney today. The median economist forecast was for a 2.8 percent gain.

Australia’s dollar slid as much as 0.8 percent to $1.0117, the weakest since July 12, before trading at $1.0128, 0.7 percent lower than the March 1 close.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net;

source

please give me comments thanks