The yen gained versus the US dollar, headed for its biggest monthly rally since July last year, as investors speculated the US Federal Reserve will not be quick to abandon efforts to support the US economy.
The euro fell versus most major peers this week after Standard & Poor’s downgraded Spain, fueling bets Europe’s debt crisis is spreading. The yen also rose amid concern new Bank of Japan (BOJ) stimulus will not be enough to spur growth. The greenback dropped as 10-year US Treasury yields slid for a sixth week, damping the appeal of US debt over Japanese bonds. US jobs growth remained below 200,000 in April, data next week may show.
“To a surprising degree, the yen has been very much correlated with US yields,” Steven Englander, head of G10 currency strategy at Citigroup Inc in New York, said on Friday. “There was also a bit of disappointment in the Bank of Japan.”
The yen strengthened 1.6 percent to ￥80.27 per US dollar on Friday in New York, from ￥81.52 a week earlier. It reached ￥80.22, the strongest level since Feb. 28. The Japanese currency has gained 3.2 percent this month, the most since a 5 percent rise in July last year. The yen advanced 1.3 percent to ￥106.40 per euro. The 17-nation currency rose 0.3 percent to US$1.3255.
The BOJ said on Thursday it would boost its asset-purchase fund to ￥40 trillion (US$498 billion) by June next year, compared with the previous target of ￥30 trillion by year-end. A separate central-bank program providing funds to banks was pared by ￥5 trillion amid lackluster demand for loans. Economists had expected an increase of as much ￥10 trillion to the nation’s stimulus program.
The central bank’s move “was fairly disappointing, so the temptation to sell the yen was weakened,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York said on Friday.
The Dollar Index fell for a second week as the Fed repeated a plan to keep its key interest rate “exceptionally low” through at least late 2014 and a government report showed the US economy expanded in the first quarter less than forecast.
US GDP grew at a 2.2 percent annual rate, US Department of Commerce data showed on Friday.
Asian currencies had a weekly gain, led by Malaysia’s ringgit, as upbeat US economic data brightened the outlook for regional exports and prompted investors to favor riskier assets.
South Korea’s GDP increased in the first quarter at the fastest pace in a year and the nation’s current-account surplus reached a four-month high last month, central bank reports showed on Thursday and Friday.
The ringgit strengthened 1.1 percent this week to 3.0315 versus the US dollar in Kuala Lumpur, its best performance in three months. The New Taiwan dollar advanced 0.6 percent to NT$29.332 and South Korea’s won appreciated 0.4 percent to 1,135.10. India’s rupee weakened 0.9 percent to 52.5425, as Standard & Poor’s lowered the outlook on its credit rating for the nation.
“It looks like the US economy is recovering; that boosts optimism in the market,” said Samson Tu (涂韶鈺), a Taipei-based fund manager at Uni-President Assets Management Corp (統一投信). “The flows into emerging sovereign bonds have been very active lately.”
Asia’s currency gains were limited by concern Europe’s debt crisis is worsening.
The won completed its biggest weekly gain in nearly two months as data showed on Friday that the current-account surplus was US$3 billion last month, up from US$557 million in February. GDP rose 0.9 percent in the first quarter from the previous quarter, according to figures released on Thursday.