(Bloomberg) -- The yen rose to a two-week high against the dollar before U.S. reports that economists say will show industrial output declined for a fifth month and a gauge of manufacturing contracted.
Japan’s currency also climbed to the strongest in two weeks against the euro on speculation a drop in Asian stocks will spur investors to reduce holdings of higher-yielding assets. The euro may decline for a second day versus the dollar on concern a German report today will show wholesale prices dropped for an fifth month, supporting the case for the European Central Bank to lower interest rates.
“The markets are returning to reality from an exuberant state,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-biggest bank. “This is a correction, which is leading to some buying of the yen,”, he said.
The yen rose to 98.77 against the dollar at 10:01 a.m. in Tokyo from 98.98 in New York yesterday. It earlier reached 98.68, the highest level since April 2. Japan’s currency gained to 130.91 per euro from 131.25. The dollar was at $1.3249 per euro from $1.3259. The euro was at 88.95 pence from 89.01 pence.
The yen may advance to 98.50 against the dollar and 130.80 per euro today, Muramatsu said.
The Nikkei 225 Stock Average fell 1 percent and the MSCI Asia-Pacific Index of regional shares declined 0.7 percent. The Standard & Poor’s 500 Index dropped 2 percent yesterday.
Benchmark rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia and in New Zealand, making assets in the South Pacific nations attractive.
Industrial Output
U.S. industrial production fell 0.9 percent in March, according to a Bloomberg News survey before the Federal Reserve report today. The Fed Bank of New York’s Empire State index of manufacturing, also due today, was minus 35 in April, a 12th month of contraction, a separate Bloomberg survey shows.
The yen rose 1.1 percent against the dollar yesterday, the most since March 19, after the Commerce Department said U.S. retail sales fell 1.1 percent in March after a revised 0.3 percent advance in February. The median forecast of economists surveyed by Bloomberg was for a 0.3 percent increase.
The euro traded near a five-week low against the pound before Germany’s Federal Statistics Office releases its report on wholesale prices today. Prices fell 7.1 percent in March from a year earlier, after a 5.7 percent drop the previous month, according to a separate Bloomberg survey.
Inflation Threatens
“If inflation threatens to remain significantly below 2 percent for a considerable period of time, then additional policy easing could be warranted to counter that eventuality,” Athanasios Orphanides, a European Central Bank council member, said in an April 11 interview in Nicosia.
The ECB cut its benchmark interest rate on April 2 less than economists forecast, reducing it by a quarter-percentage point to 1.25 percent.
The dollar may weaken toward the post-World War II low of 79.75 yen after climbing to about 103 yen in the coming weeks, according to Mizuho Financial Group Inc.
The level of 103 yen is the top of a so-called ichimoku cloud where sell orders may be triggered, causing the dollar to approach 79.75 yen, the post-war low set in April 1995, said Hiroyuki Tanaka in Tokyo at Mizuho Corporate Bank, a unit of Japan’s third-largest lender.
“The real game starts when dollar-yen hits the cloud,” said Tanaka, the bank’s chief technical analyst. The dollar’s path resembles the currency’s movements from March to August 2008 after the near-collapse of Bear Stearns Cos., he said.
The dollar tumbled to a 13-year low of 87.13 yen on Jan. 21 after the previous occasion the greenback failed to break through a cloud pattern. The dollar is entering the cloud for a second time after reaching a “double-bottom” of about 87.10 in December and January, according to Tanaka.
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net
