(Bloomberg) -- The yen and the dollar rose on speculation that stress tests on the 19 largest U.S. banks will show additional losses on their loans, boosting demand for the two currencies as a refuge from the global financial crisis.
The yen also advanced after a government report showed Japan unexpectedly posted a trade surplus in March, reviving the allure of the Japanese currency as a shelter from the worldwide recession. Australia’s dollar weakened against the greenback and the yen after a report showed the inflation rate fell to an 18- month low, giving policy makers more room to cut interest rates.
“Investors remain averse to taking on risk amid lingering worries over the financial turmoil,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The yen and the dollar are being bought as ‘safe-haven’ currencies.”
The yen climbed to 127.12 per euro as of 12:30 p.m. in Tokyo from 127.81 in New York yesterday, when it reached 126.09, the highest level since March 16. Japan’s currency advanced to 98.31 against the dollar from 98.73.
The dollar rose to $1.2930 against the euro from $1.2948 in New York yesterday. It touched $1.2889 on April 20, the strongest since March 16. The U.S. currency advanced to $1.4648 versus the British pound from $1.4673.
Australia’s dollar declined to 70.61 U.S. cents from 71.14 cents in New York yesterday, and dropped to 69.43 yen from 70.24 yen. New Zealand’s dollar fell to 55.71 cents from 56.40 cents, and weakened to 54.76 yen from 55.66 yen.
Stress Tests
The yen rose versus all 16 most-active currencies after a regulatory official said the U.S. government’s stress tests are increasingly focusing on the quality of loans the banks made after finding wide variations in underwriting standards.
The remark provides insight into the April 24 release of the regulator’s methodology for the tests. The person also said the tests don’t amount to solvency judgments, noting that estimates of each bank’s losses over the coming two years won’t necessarily equal the amount of new capital it needs to raise.
The dollar typically strengthens in times of financial turmoil as investors take refuge in the greenback as the world’s reserve currency. The yen also gains as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders.
The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was little changed at 86.537.
Japan’s currency also advanced after the Ministry of Finance said custom-cleared exports declined 45.6 percent in March from a year earlier, following a record drop of 49.4 percent in February.
‘Positive Influence’
“Improvement in terms of trade could have a positive influence on the Japanese economy,” said Susumu Kato, chief economists at Calyon Securities in Tokyo. “The yen will be traded in a stable manner.”
Japan’s gross domestic product may have contracted at an annual 10.9 percent pace in the first quarter, economists surveyed by Bloomberg predict, after shrinking at a 12.1 percent pace in the previous three months, the steepest drop since 1974.
Australia’s dollar fell toward a three-week low versus the dollar and the yen after the Bureau of Statistics said today annual inflation slowed, backing the case for the Reserve Bank of Australia to cut interest rates.
“With inflation working lower, they would be able to keep interest rates at low levels for a prolonged period of time,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “We are penciling in at least one more rate cut.”
The consumer price index in Australia rose 2.5 percent in the first quarter from a year earlier, after gaining 3.7 percent in the fourth quarter, the Bureau of Statistics said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for a 2.8 percent gain.
To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
