The yen rose against all of its major counterparts as increased risk in Japan of radiation leaks from a crippled nuclear power station boosted speculation that investors will repatriate assets to pay for earthquake damages.
The dollar rose and the Swiss franc advanced to a record against the greenback on demand for a refuge as Japan’s Prime Minister Naoto Kan said his government is doing everything it can to contain the radioactive leaks following last week’s earthquake and tsunami. The euro was lower as European Central Bank President Jean-Claude Trichet called “insufficient” a package of economic-oversight rules adopted by European Union finance ministers.
“It definitely looks like a difficult day for the global financial markets and we see the safe-haven currencies outperforming,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “There’s been some further worrying news from Japan in terms of the situation at the nuclear plant facility.”
The yen appreciated 1.8 percent to 112.16 versus the euro at 8:55 a.m. in New York, from 114.22 yesterday. The yen advanced 1 percent to 80.79 per dollar, from 81.63. The Japan currency strengthened to almost 80.22 reached Nov. 1, the strongest since April 1995 when it reached a postwar record of 79.75.
The dollar strengthened 0.8 percent to $1.3883 against the euro, from $1.3992.
Dollar Strength
Stocks and U.S. futures sank, with the Nikkei 225 index posting its biggest two-day drop since 1987. The MSCI World Index fell 2.3 percent while Standard & Poor’s 500 Index futures tumbled 2.7 percent.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, rose as much as 0.9 percent to 77.04 in the biggest intraday gain since Feb. 3.
The franc appreciated 0.4 percent to 92.07 centimes per dollar after touching 91.98, the strongest level since at least 1971, when Bloomberg records begin.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most traded currencies excluding the yen, dropped to the lowest level this month on concern related to Japan’s earthquake.
Currencies of commodity-exporting countries plunged as speculation increased the explosions at the nuclear power station will damp demand for raw materials.
South Africa’s rand, the worst performer among the major currencies, dropped 2.9 percent to 7.0176 per dollar.
Australia’s dollar weakened 2.6 percent to 98.38 U.S. cents and Canada’s currency fell 1.9 percent to 99.27 cents per U.S. dollar.
‘Increasingly Alarming’
“It’s increasingly alarming, the state of the situation in Japan,” said Paul Mackel, a currency strategist at HSBC Holdings Plc in London. “When the market goes into a very aggressive risk-off move, these currencies tend to underperform.”
Malaysia’s ringgit slid 0.8 percent to 3.0615 per dollar, according to data compiled by Bloomberg. South Korea’s won and the Philippine peso weakened 0.5 percent.
Japan’s stricken Dai-Ichi nuclear power plant was rocked by two further explosions and a fire today as workers struggled to avert the risk of a meltdown.
A hydrogen blast hit the plant’s No. 4 reactor, where Tokyo Electric Power Co. earlier reported a blaze, Japan’s Chief Cabinet Secretary Yukio Edano said at a briefing. Four of the complex’s six reactors have been damaged by explosions after cooling systems failed when they were wrecked by the magnitude 9 earthquake and deadly tsunami.
Central Bank Action
Further gains in the yen may be limited as the Bank of Japan pumps more money into financial markets, according to analysts at BNP Paribas SA.
“The BOJ will have to take a bigger responsibility to fund the rebuild of the Japanese economy, suggesting it will intensify its quantitative-easing program,” BNP analysts including Hans-Guenter Redeker, global head of currency strategy in London, wrote in an e-mailed report today. “The projected boost of the BOJ’s balance sheet should work against the yen.”
The BOJ added 5 trillion yen to the financial system in a one-day operation today. BOJ Governor Masaaki Shirakawa has pledged to keep pouring cash into the economy to stabilize markets. The bank injected 15 trillion yen ($6 billion) yesterday and doubled its asset-purchase program to 10 trillion yen, an increase that’s about one-tenth the size of the Fed’s program of buying Treasuries.
German Index
The euro stayed lower versus the dollar as the ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations dropped to 14.1 this month from 15.7 in February. Economists had expected a gain to 15.9, according to the median forecast of 38 economists in a Bloomberg News survey.
ECB President Trichet was critical as euro-zone leaders negotiated an accord to allow primary-market bond purchases that will offer a lifeline to aid recipients in return for austerity commitments. Leaders will allow the facility to spend its full 440 billion-euro capacity, removing restrictions that would have capped outlays at about 250 billion euros ($350 billion), though it won’t be used to finance bond buybacks for debt-strapped states.
“We continue to think that the improvement in governance that is presently envisaged is in our opinion insufficient to draw the lessons from the crisis,” Trichet told ministers at a meeting in Brussels today where the measures were approved.
A final agreement is slated for a summit on March 24-25.
Source: Bloomberg By
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