Yen Falls as Japan Firms Look to Raise Money for Overseas Funds

Tokyo - The yen fell the most in a week against the euro as Japanese financial companies prepared to raise at least 700 billion yen ($7.42 billion) for funds that will invest in international assets.

Japan’s currency also weakened versus Norway’s krone and Sweden’s krone after a government report showed the nation’s exports dropped last month at the slowest pace this year, spurring demand for higher-yielding investments. The dollar fell against Asian currencies as regional stocks rose for an eighth day. New Zealand’s dollar rose against the yen after the yield advantage of the nation’s three-year bonds over similar-dated Japanese debt widened to the most in three weeks.

“There’s talk of Japanese investment trust funds being set up tomorrow,” said Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets. “There’s likely selling of the yen versus other currencies such as the euro.”

The yen fell to 134.38 per euro as of 7:35 a.m. in London from 133.18 in New York yesterday. It dropped 1.5 percent to 15.080 per Norwegian krone, and slipped 1.4 percent to 12.511 per Swedish krona. The yen dropped to 94.27 versus the greenback from 93.68. The dollar slid to $1.4256 per euro from $1.4220.

Japanese financial institutions are seeking to encourage investors to put money into mutual funds focused on assets denominated in currencies such as the Turkish lira, South African rand and Brazilian real, according to data compiled by Bloomberg. Japanese investors were net buyers of 709.4 billion yen of overseas assets in the week ended July 11, figures from the Finance Ministry showed last week.

Japan Exports

Japan’s currency declined after the Finance Ministry said the contraction in the nation’s exports slowed to 35.7 percent in June from a year earlier, from 40.9 percent in May. The trade surplus widened to 508 billion yen, the ministry said in Tokyo.

“Japan’s trade data provided hard evidence that the global economy is now on the mend,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “As risk-sentiment improves on the back of receding wariness about the prospects of the global economy, the yen and the dollar will weaken against higher- yielding currencies.”

The yen fell versus New Zealand’s dollar as the difference in yields between three-year New Zealand and Japanese bonds widened to 3.45 percentage points, the most since June 26. The yen slid 1.1 percent to 62.36 against the so-called kiwi.

Benchmark Rates

The benchmark interest rate is 0.1 percent in Japan, compared with 2.5 percent in New Zealand, 3 percent in Australia and 1.25 percent in Norway, encouraging Japanese investors to seek higher returns in those countries.

The dollar fell against eight of the 10 most-traded Asian currencies as regional stocks gained, encouraging demand for emerging-market assets.

Indonesia’s rupiah approached the highest level in six weeks after the International Monetary Fund this month forecast developing economies in Asia will grow 7 percent next year from an estimated 5.5 percent in 2009. The MSCI Asia Pacific index of shares gained 0.4 percent, extending its advance to 9.1 percent since July 13.

“Asian currencies still have more appreciation to come though,” said Rajeev Malik, a regional economist at Macquarie Group Ltd. in Singapore. “As economic growth, capital flows, and risk appetite improve, all these factors will continue to play favorably for Asian currencies.”

The rupiah gained 0.6 percent to 10,050 per dollar, and Malaysia’s ringgit advanced 0.3 percent to 3.5380.

Goldman Recommendation

Investors should sell the yen against the rupiah because of factors such as “valuation” and “carry,” according to Goldman Sachs Group Inc.

“Valuation suggests that the yen is overvalued, while the rupiah is undervalued,” analysts led by Jim O’Neill, London- based global head of economic research at Goldman, wrote in an e-mail sent to Bloomberg today. “The cross is carry positive by about 7 percent over 12 months.”

Goldman Sachs recommended investors use three-month forward contracts to sell the yen at 108.60 versus the rupiah, with a target of 100. They also advised placing a one-day stop-loss order on any close above 112 in the spot market. The yen declined 0.9 percent to 106.60 per rupiah.

Forwards are agreements in which assets are bought and sold at current prices for future delivery. A stop-loss order is an automatic instruction to sell or buy a currency should it reach a particular level.

U.S. Earnings

The yen and the dollar gained earlier versus the pound on speculation U.S. companies including CIT Group Inc. and American Express Co. will report weaker second-quarter earnings today, spurring demand for the relative safety of the Japanese and U.S. currencies.

“Risk aversion is likely to stay prominent, given earnings announcements by companies including CIT,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The bias is for haven currencies such as the yen to be bought.”

CIT said on July 21 it expected to post a loss of more than $1.5 billion for the second quarter, renewing concern the lender may have to file for bankruptcy. Morgan Stanley said yesterday its loss from continuing operations was $159 million compared with earnings of $689 million in the same period a year earlier.