Yen, Dollar Rise as Renewed Greece Concerns Spur Safety Demand

April 16 -- The yen and the dollar strengthened as prospects Greece will struggle to rein in the euro region’s widest budget deficit spurred demand for safer assets.

The common currency was set for its second week of losses against the yen as the extra yield investors demand to hold Greek 10-year bonds over German bunds widened to the most since Greece won a 45 billion euro ($61 billion) bailout package on April 11. The yen and Singapore’s dollar were poised for weekly gains versus the dollar on speculation China will scrap the yuan’s peg to deal with accelerating economic growth.

“Risk appetite is being tempered by a flaring up of concerns over European sovereign risk,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This may limit near-term gains in the euro, and underpin demand for ‘safe haven’ currencies like the dollar and the yen.”

The dollar was at $1.3553 per euro as of 10:23 a.m. in Tokyo from $1.3573 yesterday in New York. The yen traded at 125.65 per euro from 126.27 yesterday. The yen was at 92.69 per dollar from 93.03, heading for a 0.5 percent advance this week.

The Singapore dollar rose 0.9 percent this week to S$1.3767.

Greek Prime Minister George Papandreou yesterday asked for a meeting with the European Union, the International Monetary Fund and the European Central Bank. Talks will begin in Athens on April 19.

Greece Concerns

The government’s request came after the yield on Greece’s benchmark 10-year government bond surged to as high as 7.381 percent yesterday, higher than the level before the rescue package was announced on April 11.

The premium investors demand to buy Greek debt over comparable German bonds has more than doubled since Dec. 1 on concern that Greece would struggle to trim the deficit and fund its rising debt. The prospect of a euro-region country defaulting or needing a bailout contributed to the euro declining more than 5 percent this year and raised the borrowing costs for other EU nations with large deficits.

The euro region is aiming to prevent the first default of a member nation and offered to put up two-thirds of the package to sustain Greece and protect the single currency. Greece needs to raise 11.6 billion euros by the end of May, and Papandreou has said borrowing at current market interest rates is “unsustainable.”

“It appears just a matter of time before the backstop packages turn into bailout ones for Greece,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland. “Markets hang on every announcement around this and the euro is eventually likely to be hung because of it.”

Yuan Policy

Asian currencies rose against the dollar this week as traders bet the yuan may rise more than 3 percent in the next 12 months after China’s economy expanded at the fastest pace in almost three years.

Yuan forwards were at 6.6125 per dollar, compared with 6.6130 yesterday. China has pegged its currency at about 6.83 against the dollar since July 2008, after allowing it to rise 21 percent in the previous three years.

Speculation about China’s currency policy intensified after U.S. Treasury Secretary Timothy F. Geithner had an unscheduled meeting with Chinese Vice Premier Wang Qishan in Beijing on April 8 and delayed a report which could brand the nation a currency manipulator. In Singapore, the central bank this week announced a one-time revaluation.

“China may revalue the yuan sooner rather than later as part of its ongoing exit from stimulus policies,” said Toshiya Yamauchi, senior foreign-exchange analyst in Tokyo at online currency trading company Ueda Harlow Ltd. “This will also fuel some upward pressure on the yen.”

The Chinese economy grew 11.9 percent from a year earlier, the biggest gain since the second quarter of 2007, the statistics bureau said in Beijing yesterday.