Yen Rises as China, Greece Speculation Spurs Demand for Safety

April 17 -- The yen advanced against all of its most-traded counterparts as speculation China may take further steps to slow its economy and Greece may trigger a $61 billion rescue package spurred demand for relative safety.

The dollar dropped for two straight weeks against the yen for the first time since January after Goldman Sachs Group Inc. was charged with fraud, making U.S. stocks less attractive. Canada’s dollar fell against the greenback for the first time in three weeks after touching parity for a second week before the Bank of Canada’s policy meeting on April 20.

“The Greece story isn’t going away soon, and we expect further tightening from China,” said Vassili Serebriakov, a strategist at Wells Fargo & Co. in New York. “That’s triggered some caution in the market, and that’s why you’re seeing the yen doing better.”

The yen gained 1.1 percent to 124.44 per euro yesterday, from 125.79 on April 9. Japan’s currency appreciated 1.1 percent to 92.17 against the dollar, from 93.18. It advanced to 91.91 yesterday, the strongest level since March 25. The euro was little changed at $1.3503, compared with $1.35.

The dollar dropped to the lowest level against the yen in almost a month as Goldman Sachs was sued by the Securities and Exchange Commission for fraud related to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The charges “are completely unfounded,” Goldman Sachs said in a statement.

‘Riveted’ on Goldman

“The Goldman news has people riveted,” said Firas Askari, head currency trader in Toronto at Bank of Montreal, Canada’s fourth-largest lender. “Risk off.”

The Standard & Poor’s 500 Index erased its weekly gain, ending the week down 0.2 percent. Crude oil dropped 2.3 percent this week, the most since the five days ended Jan. 22.

New Zealand’s dollar slid 2.1 percent to 65.31 yen this week and Australia’s currency lost 2 percent to 85.18 yen on speculation investors will reduce carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low interest rates. Japan’s benchmark of 0.1 percent has made the yen popular for funding such transactions.

Twelve-month non-deliverable yuan forwards finished the week at 6.6185 per dollar, indicating traders bet China’s currency may gain 3 percent in the next 12 months. China has pegged the yuan at about 6.83 since July 2008, after allowing it to rise 21 percent in the previous three years.

China’s cabinet raised minimum mortgage rates and down- payment ratios for some home purchases, saying “more forceful” steps are needed to cool speculation after property prices rose at a record pace in March.

‘Prudent Policy’

“It’s what China needs to do and should do,” said Alan Ruskin, head of currency strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “This is prudent policy to achieve sustained growth over the cycle.”

The nation’s economy grew 11.9 percent from a year earlier in the biggest gain since the second quarter of 2007, the statistics bureau said this week.

Singapore’s dollar rallied the most against the greenback in six months, appreciating 1 percent to S$1.3756 as its central bank unexpectedly revalued its currency after the government raised forecasts for economic growth and inflation.

The Monetary Authority said it will seek a “modest and gradual appreciation” in the local dollar and shift to a stronger range for currency fluctuations, the first such combined move in its 39-year history.

Greece Talks

The euro fell for a second straight week versus the yen before talks on Greece involving the European Union, the International Monetary Fund and the European Central Bank that are scheduled to begin on April 19.

European finance ministers offered as much as 30 billion euros ($41 billion) in three-year loans in 2010 at about 5 percent, compared with the three-year Greek bond yield of 7.21 percent. Another 15 billion euros would come from the International Monetary Fund.

“I see Greece doing the sensible thing and turning its back on the bond market,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut. “We say take it at 5 percent.”

Canada’s dollar slid 1 percent to C$1.0128 versus the greenback this week after trading at 99.54 Canadian cents versus the dollar on April 14, the strongest level since June 2008.

The Bank of Canada will meet April 20 to decide on interest rates. Governor Mark Carney signaled last month he’s open to raising the target lending rate as soon as June 1 as inflation and growth outpace forecasts.

South Africa’s rand was the biggest loser versus the dollar, declining 1.8 percent to 7.390 on speculation the nation’s central bank will lower its target lending rate, now at 6.5 percent. The nation’s retail sales unexpectedly contracted for a 13th month in February, a report showed this week.