Yen Advances as Europe Debt, China Tightening Concerns Boost Saftey Demand

The yen strengthened to a three-week high against the dollar as concerns about Europe’s debt crisis and China’s efforts to cool its economy boosted demand for Japan’s currency as a refuge.

The yen advanced against all of its 16 major counterparts as ministers from the 27 European Union countries are set to give formal approval today to an Irish aid package announced on Nov. 28. Asian stocks fell as the China Securities Journal reported today that the period around this weekend may be a “window” for China to raise interest rates. Demand for the Australian dollar was limited before the Reserve Bank of Australia concludes a policy meeting today.

“There are many risk factors” about the global economy, said Kazuyuki Kato, treasury department manager in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-biggest bank. “People can’t buy risk currencies aggressively. Cross currencies will struggle to rise against the yen.”

The yen rose to 82.35 per dollar as of 12:10 p.m. in Tokyo from 82.66 in New York yesterday. It earlier touched 82.34 per dollar, the strongest since Nov. 12. The yen was at 109.88 per euro from 110. The dollar fell to $1.3342 per euro from $1.3308 yesterday, when it touched $1.3442, the lowest since Nov. 23.

Belgian Finance Minister Didier Reynders said a European bailout fund might be expanded, breaking ranks with German Chancellor Angela Merkel and French President Nicolas Sarkozy. He said European finance ministers meeting in Brussels will discuss Portugal’s outlook amid concern it will need aid.

Europe’s Crisis

Ireland’s parliament will vote today on its budget, which must be passed for the aid to go into effect. European Central Bank Vice President Vitor Constancio will hold a speech at a conference in Paris today.

“I can’t be bullish on the euro,” said Daisaku Ueno, president in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest currency margin company. “The crisis won’t ease anytime soon as officials’ opinions have been divided over how to deal with it. This may deteriorate the region’s economic fundamentals next year as well.”

The euro slid 6.9 percent in November, its biggest monthly drop since May, as Ireland accepted an 85 billion-euro ($113 billion) bailout package from the EU and International Monetary Fund. The Irish government will lay out details today of 6 billion euros of spending cuts and tax increases. Prime Minister Brian Cowen’s Fianna Fail party has a minority of seats in parliament and may struggle to pass the budget.

China’s Rates

The euro has declined 9.2 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar is down 1.8 percent, while the yen has gained 12 percent.

The yen also rose today as the Nikkei 225 Stock Average fell 0.7 percent and the Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 0.9 percent.

China’s central bank may raise rates around the time set for the release of November’s inflation data, which has been scheduled for Dec. 13, the China Securities Journal said. It cited Li Huiyong, an analyst at Shenyin & Wanguo Securities Co, who forecast consumer prices may rise 5.1 percent last month.

“China will continue to tap the brakes on its economy,” said Keiji Matsumoto, a currency strategist in Tokyo at Nikko Cordial Securities Inc. “The bias is for the yen to strengthen against growth-sensitive currencies.”

The yen typically strengthens in times of financial turmoil as Japan’s trade surplus means the nation does not have to rely on overseas lenders.

RBA Meeting

RBA Governor Glenn Stevens and his board will keep borrowing costs unchanged, all 25 economists surveyed by Bloomberg News forecast.

“The RBA’s focus, rightly, is on medium-term issues like the terms of trade and the mining boom,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The risks are for a less dovish release.”

Australia’s currency traded at 99.13 U.S. cents from 98.99 cents, after dropping 0.3 percent yesterday. It fell to 81.64 yen from 81.82 yen.

The dollar fell versus 11 of its 16 major counterparts amid speculation the Federal Reserve will buy more bonds beyond $600 billion to keep the economy from slipping back into a recession.

Policy makers meet next week to review their plan to buy Treasuries through June and expand record stimulus in a bid to reduce 9.8 percent unemployment and keep inflation from slowing.

“Dollar sell-off is coming back in the markets as the Fed said it may expand the bond purchases, increasing uncertainty about the U.S. economy,” said Kengo Suzuki, manager of the foreign bond department in Tokyo at Mizuho Securities Co.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, fell 0.3 percent to 79.434.

Source: http://www.bloomberg.com/