The yen dropped against higher-yielding counterparts after Japan had a smaller current-account surplus than economists predicted and record-low foreign-exchange volatility curbed demand for haven assets.
Japan’s currency declined for a fourth day against the New Zealand dollar as the lower price swings emboldened traders to seek profits by exploiting differences in interest rates. South Korea’s won advanced to the strongest in almost six years after a report showed Chinese exports increased. The Australian dollar rose to a three-week high against its U.S. peer as Morgan Stanley said it will appreciate to parity.
“Japan’s trade position has deteriorated markedly in recent years and that’s something we continue to see as a negative factor for the yen,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “This low-volatility environment is encouraging investors to rebuild carry trades so that is a potential negative for the yen.”
The yen declined 0.1 percent to 87.20 per New Zealand dollar at 11:02 a.m. London time and slid 0.3 percent to 95.90 against the Aussie.
Japan’s currency strengthened 0.2 percent to 139.57 per euro after depreciating as much as 0.2 percent to 140.09, the weakest level since May 14. It traded at 102.48 per dollar, unchanged from June 6. The euro slipped 0.2 percent to $1.3620.
Volatility Drops
The nation had a current-account surplus of 187.4 billion yen in April, the Ministry of Finance said today in Tokyo. That compared to a 287.7 billion yen surplus forecast by economists surveyed by Bloomberg News. Japan has posted annual surpluses since at least 1996 that reduced its reliance on foreign capital and underpinned the yen’s haven status.
JPMorgan Chase & Co.’s Global FX Volatility Index fell to 5.72 percent, down from as much as 27 percent in October 2008, after Lehman Brothers Holdings Inc.’s collapse froze credit markets amid the worst financial crisis since the Great Depression. Lower volatility increases the appeal of a strategy of borrowing in currencies with low interest rates and investing in a higher-yielding currency, known as the carry trade.
The yen tumbled 6.1 percent in the past year, the worst performer after the Canadian dollar of 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The euro advanced 2.6 percent, while the U.S. dollar declined 0.9 percent.
Aussie Gains
The Aussie rose 0.3 percent to 93.59 U.S. cents and touched 93.64 cents, the strongest levels since May 19. The kiwi advanced 0.1 percent to 85.11 U.S. cents. Australia’s financial markets are closed today for a holiday.
Morgan Stanley raised its forecast for the Aussie, citing an increase in global demand for higher-yielding assets.
“The main driver of our bullish stance is our expectation that global demand for high-yielding AAA paper will result in further strong inflows to Australia,” Geoffrey Kendrick, Morgan Stanley’s head of Asia currency and interest-rate strategy in Hong Kong, wrote in a research note. “It’s Japanese buyers that are returning.”
Morgan Stanley’s forecast is the most bullish among about 50 active estimates compiled by Bloomberg. The median is for the currency to weaken to 89 U.S. cents by Dec. 31.
The Australian and New Zealand currencies rallied after Chinese data released yesterday showed exports from Asia’s biggest economy increased 7 percent in May versus a year earlier, the fastest pace since January.
‘Positive Environment’
“It’s a fairly positive risk environment,” said Greg Gibbs, head of Asia Pacific markets strategy at Royal Bank of Scotland Group Plc in Singapore. “You’ve seen better export numbers come out of a number of Asian countries recently. The global growth scenario appears quite stable and more buoyant.”
The won advanced amid speculation the European Central Bank’s decision last week to boost monetary easing and a U.S. report showing employers added jobs last month will underpin demand for assets tied to growth.
“The ECB actions may increase flows to emerging markets while the U.S. employment figures back a brighter economic outlook, supporting a stronger won,” said Jahng Won, a currency dealer at Shinhan Bank in Seoul. “There will be caution against intervention by South Korea’s authorities as the won strengthens.”
The won rose 0.4 percent from June 5 to 1,016.50 per dollar after advancing to 1,016.30, the strongest since August 2008. Korean financial markets were shut on June 6 for a holiday.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Kevin Buckland in Tokyo at kbuckland1@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord
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