Yen Gains to Six-Week High Versus Euro on Growth Outlook

The yen climbed to the strongest level in almost six weeks against the euro and gained versus all its most-traded counterparts as signs global growth is slowing underpinned demand for the relative safety of the currency.

The dollar rose versus all its major peers except the yen after South Korea unexpectedly lowered interest rates, while the euro slid below $1.22 for the first time since July 2010. The Bank of Japan (8301) refrained from expanding stimulus, adding to haven demand. China releases quarterly gross domestic product data today. Australia’s dollar slid after employers cut jobs.

“The Bank of Japan monetary-policy decision didn’t lead to any significant new expansion in the BOJ balance sheet or something the market would consider more aggressive quantitative easing,” Shahab Jalinoos, a Stamford, Connecticut-based senior currency strategist at UBS AG, said in a telephone interview. “The market was disappointed, and the yen clawed back some recent losses.”

The yen gained 0.9 percent to 96.72 per euro at 1:15 p.m. New York time after appreciating earlier to 96.43, the strongest level since June 1. Japan’s currency advanced 0.6 percent to 79.30 per dollar. The euro weakened 0.4 percent to $1.2196 after sliding to as low as $1.2167.

Japan’s currency rose versus the dollar as the extra yield investors receive for investing in two-year U.S. Treasuries versus comparable Japanese government bonds fell to the lowest in a month, limiting dollar-denominated assets’ appeal. The yield spread was 16 basis points, or 0.16 percentage point.

Euro Weakens as Investors Sell to Buy Higher-Yield Assets

The euro fell to a two-year low versus the dollar and weakened against all of its 16 most-traded peers as traders used the shared currency to fund purchases of higher-yielding assets.

The 17-nation currency dropped to the weakest on record versus Australia’s dollar five days after the European Central Bank cut its key interest rate to an all-time low 0.75 percent. Sweden’s krona reached its strongest against the euro since 2000 as industrial production fell less than forecast, and Mexico’s peso gained versus the dollar on bets Europe’s crisis will ease.

“The euro is now the main funding currency, and everyone wants to be short euro,” said Sebastian Galy, a senior foreign- exchange strategist at Societe Generale SA in New York. “The dollar is no longer the main funding currency.” A short position is a wager a currency will decline in value.

The euro depreciated as much as 0.6 percent to $1.2235, the lowest since July 2010, before trading at $1.2255 at 1:36 p.m. New York time, down 0.5 percent. The common currency declined 0.6 percent to 97.38 yen and touched 97.23 yen, the weakest since June 5. The yen gained 0.1 percent to 79.47 per dollar.

Australia’s dollar climbed 0.5 percent to A$1.2002 per euro and touched A$1.1988. The Aussie was little changed at $1.0209 and slipped 0.1 percent to 81.12 yen.
Investors sell currencies of nations with low borrowing costs to purchase those with higher yields in the carry trade. Japan’s yen and the U.S. dollar are traditional funding currencies because the nation’s central banks are holding interest rates at almost zero. The Reserve of Australia’s cash rate target is 3.5 percent.