Yen Weakens, Snaps 3-Day Gain, as Trade Deficit May Damp Demand

(Bloomberg) -- The yen fell for the first time in four days against the euro and the dollar before a government report tomorrow that may show Japan posted a trade deficit last month, damping the currency’s appeal as a refuge.

Japan’s currency dropped from a five-week high against the euro as technical indicators showed its recent gains were excessive. The euro traded near the lowest in a month against the dollar on speculation the European Central Bank will cut interest rates and signal it may pump money into the economy to spur growth. South Korea’s won dropped the most in almost two weeks as widening U.S. credit losses curbed demand for emerging- market assets.

“The Japanese economy is in a terrible way and people are very pessimistic,” said Sean Callow, Sydney-based senior currency strategist at Westpac Banking Corp., Australia’s biggest bank by market value. “If we get much further deterioration in the trade position, it should be a yen negative.”

The yen dropped to 127.16 per euro as of 12:42 p.m. in Tokyo from 126.48 in New York yesterday. It has still gained 3.2 percent against the euro in the past week and earlier reached 126.09, the strongest level since March 16. Japan’s currency declined to 98.26 per dollar from 97.89, and weakened to 68.94 against Australia’s dollar from 68.20.

The greenback traded at $1.2939 per euro from $1.2921 yesterday, when it reached $1.2889, the highest level since March 16. The won fell 1.3 percent, the most since April 8, to 1,352.70 per dollar.

Trade Deficit

Japan’s currency weakened against all 16 of the most-traded currencies before the finance ministry releases its trade report in Tokyo tomorrow. The nation had a trade deficit of 27 billion yen ($275 million) in March, the fifth shortfall in six months, according to a Bloomberg News survey of economists.

The yen fell from a five-week high versus the euro as the European currency’s 14-day stochastic oscillator against Japan’s dropped to 8 today, below the 20 level that signals the euro may have fallen too quickly and is poised to strengthen.

“There’s a sense the yen has been overbought,” said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest bank. “Market participants are probably unwinding long yen positions.” A long position is a bet an asset will gain.

Stocks Slump

Declines in the yen were tempered as Asian stocks extended a global slump in equities, spurring demand for the relative safety of the Japanese currency. The MSCI Asia-Pacific Index of regional shares slipped 2.8 percent.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was little changed at 86.642. U.S. stocks tumbled yesterday after Bank of America Corp. put aside $6.4 billion to cover a growing pool of uncollectible loans. JPMorgan Chase & Co. said banks will likely realize about $400 billion more in losses on soured assets.

“Stocks are falling and uncertainty over the credit markets is returning,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second- biggest bank. “The yen may be bought.”

President Barack Obama said on April 19 that he will demand “accountability” from any U.S. banks that require additional taxpayer money following “stress tests” being conducted by regulators. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen.

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