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Yen Touches Week-High As Spain Delay Spurs Haven Bid

Published: August 31, 2012 | 7:36 am
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The yen reached its strongest level in a week after Spain’s Prime Minister Mariano Rajoy delayed seeking a sovereign bailout for his country, spurring demand for haven assets amid Europe’s fiscal turmoil.
Japan’s currency is set to gain versus most of its major peers this week as three Spanish regions said they will need emergency loans. Moody’s Investors Service said its review of Spain’s debt rating will continue through September and reiterated the risk of a possible downgrade. The dollar was supported as investors weigh whether Federal Reserve Chairman Ben S. Bernanke will signal new stimulus when he speaks today in Jackson Hole, Wyoming.

The yen is “resilient as it’s a risk-off market,” said Ken Takahashi, assistant vice president of global markets in New York at Sumitomo Mitsui Trust Bank Ltd. “I don’t think Bernanke will make any commitment to specific policy in Jackson Hole.”
The Japanese currency gained 0.2 percent to 78.46 per dollar at 7 a.m. in London after earlier touching 78.40, the strongest since Aug. 23. It advanced 0.3 percent to 98.06 per euro. Europe’s shared currency was little changed at $1.2500.

Spain Waits

Rajoy said yesterday after a meeting in Madrid with French President Francois Hollande that his nation won’t seek a second bailout until European leaders make aid conditions clear. Spain locked in as much as 100 billion euros ($125 billion) in international aid for banks last month.
Moody’s review of Spain’s credit score, which started on June 13, will probably continue through September, the New York based ratings firm said in a statement yesterday. The company reduced Spain to its lowest investment grade level on June 13, cutting it three steps to Baa3 from A3.
“The Baa3 long term debt rating of the Spanish government remains on review for possible downgrade,” Moody’s said in the statement. The review is dependent on the scope of the nation’s bank recapitalization, support available under the European Stability Mechanism and potential changes to the region’s existing crisis-management framework, according to the statement.

Regional Claims

Catalonia, Valencia and Murcia this week claimed more than half of an 18 billion-euro fund announced by Rajoy last month to help the regions face bond redemptions and finance their deficits in the second half.
The euro is down 0.1 percent this week versus the dollar and 1.6 percent above last month’s close. The yen has risen 0.3 percent against the dollar this week and 0.4 percent against the euro. Over the past month the Japanese currency has fallen 0.4 percent versus the greenback and 2 percent against the euro.
The yen tends to strengthen during periods of financial and economic turmoil because Japan’s current-account surplus means it isn’t reliant on foreign capital. The dollar benefits because it is the world’s reserve currency.
Japan’s currency held its weekly gain even after the statistics bureau said today consumer prices excluding fresh food fell 0.3 percent in July from a year earlier. That compares with a 1 percent inflation goal set by the Bank of Japan (8301) in February. Industrial production unexpectedly declined in the same period, according to Trade Ministry figures released today.

U.S. Economy

In the U.S., orders placed with factories probably climbed 2 percent last month after a 0.5 percent drop in June, according to the median estimate of economists in a Bloomberg News survey before the Commerce Department releases the figures today. That would be the biggest advance since December.
A separate poll predicted a final reading for the Thomson Reuters/University of Michigan confidence index will confirm the gauge rose this month to the highest level since May.
The U.S. central bank has a tough decision on whether to add further stimulus to promote a stronger economic recovery, according to Atlanta Fed President Dennis Lockhart, who votes on monetary policy this year.
“I think it is a close call, really,” Lockhart said yesterday in a CNBC interview from Jackson Hole. “I am not overly concerned with the longer-term costs of more action, but at the same time I see limited benefit from more action.”
Members of the Federal Open Market Committee said additional stimulus would probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their most recent gathering released on Aug. 22. Officials next meet on Sept. 12-13.
The Fed has already purchased $2.3 trillion of assets in two rounds of the stimulus known as quantitative easing.

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