Yen Drops as Australian Jobs Beat Forecasts and Stocks Advance

Jan. 14 -- The yen weakened against higher- yielding currencies for a second day after an Australian employment report beat analysts’ forecasts and stocks rose in Asia and Europe, boosting demand for riskier assets.

The yen fell versus all 16 of its most-traded peers, and dropping the most against Australia’s dollar, as the MSCI World Index of stocks advanced for a second day. The euro rose against the yen before a meeting of the European Central Bank at which policy makers are likely to keep interest rates unchanged.

“With risk back on, the yen has room to fall,” said Dag Muller, a foreign-exchange analyst in Stockholm with SEB AB, Sweden’s third-biggest bank.

The yen weakened to 85.39 per Australian dollar as of 6:42 a.m. in New York, from 84.45 yesterday. It depreciated to 133.16 per euro, from 132.59, and to 91.85 per dollar, from 91.37. The U.S. currency was at $1.4497 per euro, from $1.4510.

The ECB will leave its main refinancing rate at 1 percent following a meeting today, according to all of the 51 economists in a Bloomberg survey. The decision is scheduled for release at 1:45 p.m. in Frankfurt and central bank President Jean-Claude Trichet will address reporters 45 minutes later.

“The ECB is likely to leave rates and its non-standard measures unchanged,” Michael Hart, a currency strategist for Citigroup Inc. in London, wrote in a note today. “Its language is likely to remain dovish.”

Trichet Concern

The common currency erased a gain versus the dollar on concern Trichet will say the ECB won’t help members with fiscal problems. Greek Finance Minister George Papaconstantinou said today it’s difficult to convince investors about the health of the country’s finances at the moment.

“We could hear some harsh words from Trichet suggesting that the ECB isn’t going to bail out individual governments that have been fiscally irresponsible,” said Ian Stannard, a currency strategist with BNP Paribas SA in London. “Expect the euro to come under pressure.”

The Greek government struggles to rein in a budget deficit that’s still more than four times the European Union’s 3 percent limit of gross domestic product. Trichet said on Dec. 11 that Greece must take “courageous action” on its own.

Australia’s dollar strengthened against all 16 of its most- traded counterparts tracked by Bloomberg after the nation’s statistics bureau said the number of people employed rose 35,200 in December from the previous month. The median estimate of economists surveyed by Bloomberg was for an increase of 10,000. The jobless rate fell to 5.5 percent from a revised 5.6 percent.

‘Strong Data’

“Strong data in Australia are bolstering confidence for another rate increase,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender.

The odds that the Reserve Bank of Australia will raise its target rate by 25 basis points at its next meeting on Feb. 2 increased to 76 percent, from 60 percent yesterday, according to a Credit Suisse AG index. The MSCI World Index of global stocks rose 0.4 percent.

The yen also weakened after Japanese reports showed producer prices fell for a 12th month and machine orders unexpectedly declined, adding to speculation the government will take more measures to combat deflation and revive growth.

The costs companies pay for energy and unfinished goods tumbled 3.9 percent in December from a year earlier, the Bank of Japan said in Tokyo. Machine orders, an indicator of business investment in three to six months, slid 11.3 percent in November, the Cabinet Office said.

“The basic scenario is for the government to implement monetary easing and fiscal policies to fight deflation,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust & Banking Co., a unit of Japan’s largest brokerage. “The trend for yen weakness is likely to remain unchanged.”

Fed’s Dudley

New York Federal Reserve Bank President William Dudley said U.S. rates may remain “low” for at least six months and possibly two years, according to the transcript of an interview with PBS Television’s Nightly Business Report.

Futures trading in Chicago yesterday showed a 34 percent chance the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, down from 41 percent odds a week earlier.

Commodity currencies like the Australian dollar also gained after Zheng Xiaosong, director general of the international department at China’s Ministry of Finance, said ending global stimulus programs too early may hurt the recovery.

Chinese Move

China’s central bank on Jan. 12 unexpectedly raised the proportion of deposits banks must set aside as reserves by half a percentage point starting Jan. 18.

“Zheng’s comments aim to ease concerns about China’s early tightening,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “The bias is for commodity currencies to be bought.”

Japanese Finance Minister Naoto Kan said he’s prepared to address China’s currency at a Group of Seven meeting next month, and signaled the Bank of Japan has scope for further action to aid the economy.

“Some nations might bring up the issue of the yuan,” Kan, who took his post last week, told reporters in Tokyo today. “I will listen carefully and express opinions if necessary, as the discussion may have a great impact on Japan’s economy.”