Dollar Trades Near Four-Month High Versus Yen on Risk Appetite

Jan. 4 -- The dollar traded near a four-month high against the yen as signs the U.S. recovery is strengthening buoyed demand for assets in the world’s biggest economy.

The U.S. currency rose to a one-week high against the euro before reports this week forecast to show that U.S. manufacturing, which accounts for about 12 percent of the economy, expanded for a fifth month and factory bookings increased. The British currency fell after the Sunday Telegraph reported that U.K. Business Secretary Peter Mandelson said the pound’s devaluation aided Britain’s economy in the recession.

“Good U.S. data are giving investors more confidence in the greenback,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. “The dollar is likely to trade with a firm tone.”

The dollar was at 92.88 yen at 11:28 a.m. in Tokyo from 93.02 yen in New York on Dec. 31 when it touched 93.15 yen, the highest level since Sept. 7. The yen was worth 132.66 per euro from 133.20 yen last week. The dollar gained to $1.4285 per euro, compared with $1.4321 on Dec. 31, after earlier touching $1.4262, the strongest level since Dec. 23.

The pound slid to $1.6090 from $1.6170 on Dec. 31.

The U.S. Institute for Supply Management will report today its factory index rose in December to 54 from 53.6 the prior month, according to a Bloomberg News survey. The gauge has surpassed the breakeven level of 50 since August.

A separate report from the Commerce Department tomorrow will show factory bookings increased 0.5 percent in November after rising 0.6 percent the previous month, according to economists surveyed.

Annual Advance

The Dollar Index climbed as much as 0.4 percent, the most in more than two weeks, as prospects for better manufacturing and an improved job market stoked speculation the Federal Reserve will start raising ahead of other central banks.

Futures trading in Chicago showed a 60 percent chance that the Fed will increase its zero to 0.25 percent target lending rate by at least a quarter-percentage point by its June meeting, compared with 31 percent odds a month ago.

The yen has weakened 2.4 percent versus the dollar in the past month as the Bank of Japan said Dec. 18 it was intolerant of price declines amid signs deflation may undermine the economic recovery.

BOJ Governor Masaaki Shirakawa said on Dec. 24 his policy board is ready to act to support growth, and some strategists are predicting that will result in a flood of Japanese currency that will weaken the yen.

U.S. Rates

“The dollar continued to rise against the yen on prospects for higher U.S. official rates this year and the potential for Japan to embark on aggressive quantitative easing to fight deflation in prices,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in research note today.

The U.S. currency rose 2.6 percent against the yen in 2009 as the yield premium of 10-year Treasury notes over similar- maturity Japanese bonds rose last week to the highest level in more than two years, making U.S. debt more appealing than Japan’s securities.

Losses in the yen were tempered by speculation Japanese exporters were taking advantage of the past month’s decline to bring home foreign earnings.

Japanese Exporters

“There is talk exporters are buying the yen, which has fallen to attractive levels relative to the rates budgeted,” said Takashi Kudo, general manager of market information service in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.

Large Japanese manufacturers expect the yen to average 91.16 per dollar in the six months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released last month.

The British currency fell for a second day versus the dollar on concerns that U.K. policy makers want a weak currency to revive the nation’s economy.

Sterling, which declined 19 percent against the dollar in the 2008-2009 period, has aided the U.K., the Telegraph cited Mandelson as saying. The business secretary praised the Bank of England for its asset-purchase program, the newspaper said.

“The article suggests the U.K. may prefer currency weakness this year,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “It’s a pound-negative.”

Pacific Investment Management Co., which runs the world’s biggest bond fund, is cutting holdings of U.K. and U.S. debt as borrowing rises in the nations, the company said in a report on its Web site.