The yen rose to an eight-week high against the dollar in London as Japan's longest economic expansion since 1997 drives stock prices and bond yields higher. ``The yen is our currency of choice,'' said David Mozina, currency strategist in Sydney at ABN Amro Holding NV. ``A recovery is upon us. The equity market is not getting flogged while yields are rising. This will induce foreign funding back into Japan.''
Against the dollar, the yen rose to 108.62 as of 7:25 a.m. in London from 108.86 late Friday in New York, according to EBS, an electronic foreign-exchange dealing system. It also climbed to 131.65 per euro from 132.14. Japan's currency traded as high as 108.30 per dollar, the strongest since April 26. Japan's benchmark Nikkei 225 Stock Average rose 1.9 percent today and is up 8.7 percent so far this year. The yield on Japan's benchmark 10-year bond last week rose to a four-year high, while the yen has climbed 6 percent since trading at an eight-month low versus the dollar on May 14. The yen may rise to 100 per dollar in the next six months, Mozina said. Eighty-four percent of the 85 traders, investors and strategists polled Friday from Tokyo to New York advised buying or holding Japan's currency versus the dollar, up from 72 percent a week ago. Seventy-six percent said to purchase the yen compared with the euro.
Outlook From Moody's
The yen's strength may slow Japan's economic recovery, Thomas Byrne, New York-based chief Asian sovereign debt-rating analyst at Moody's Investors Service, said. He made comments at a press conference in Tokyo. Currency gains can slow growth because they erode the profits exporters earn on overseas sales. The dollar also fell after a report Friday showed the U.S. current account deficit widened to a record $144.9 billion in the first three months of the year. The difference between imports and exports adds to concern more dollars will have to be converted to other currencies as the economy accelerates.
Based on the quarterly figure, the U.S. needs to attract $1.6 billion a day to maintain the dollar's value. ``The U.S. dollar will likely come under pressure this week,'' said Ashley Davies, currency strategist in Singapore at UBS AG, the biggest trader in the daily $1.2 trillion currency market. The dollar was little changed at $1.2128 per euro from last week, when it fell 1.1 percent.
Signs of Growth
Futures traders increased bets the yen will advance against the dollar, figures reflecting Tuesday's holdings at the Chicago Board of Trade show. The difference in the number of wagers by hedge funds and other large speculators on a gain in the Japanese currency versus the dollar compared with those on a loss -- so- called net longs -- rose to 2,500 contracts, up from 598 a week ago. The figures were published on Friday. Japan's trade surplus probably widened to 1.05 trillion yen (9.68 billion) in May, seasonally adjusted, from 985.5 billion yen the previous month, a report Wednesday may show, based on the median of 17 forecasts in a Bloomberg News survey. The Bank of Japan last week raised its economic growth assessment, saying the economy is in the best shape since the asset-price bubble burst in 1991. The Nikkei's rise this year contrasts with the performance of the Dow Jones Industrial Average, which is down 0.4 percent.
``The key channel for capital flows is the equity market,'' said Masaaki Kanno, a former chief currency trader at the BOJ and now the chief economist at J.P. Morgan Chase & Co. in Tokyo. ``The yen will respond as investors increase their share purchases.'' Japan's tertiary index, a measure of demand for services, probably rose 1.6 percent in April, according to the median estimate of 32 economists surveyed by Bloomberg News. The index rose 1 percent in March. The Ministry of Economy, Trade and Industry is scheduled to release the report Thursday. //www.bloomberg.com