Yen, Dollar Rise as CIT Bankruptcy Concern Spurs Safety Demand

The yen and the dollar strengthened for a second day against the euro on renewed concern U.S. commercial lender CIT Group Inc. will file for bankruptcy, boosting demand for safer assets.
The yen rose against 15 out of 16 major currencies after CIT said it expected to post a loss of more than $1.5 billion and its “existing liquidity” is not enough to repay maturing notes. The pound weakened after an industry group said the U.K. house-price slump will persist, backing the case for the central bank to keep borrowing costs low. The Australian and New Zealand dollars declined after Federal Reserve Chairman Ben S. Bernanke said dangers to the U.S. economy remain.
“Worries over a possible insolvency of CIT appear to be returning,” said Akifumi Uchida, a Tokyo-based deputy general manager of the marketing unit at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “This is a minus for sentiment and may cause buying of the yen versus the dollar and the dollar against European currencies.”
The yen strengthened to 133.01 per euro as of 1:14 p.m. in Tokyo from 133.36 in New York yesterday, when it gained 0.5 percent. Japan’s currency climbed to 93.68 versus the dollar from 93.73. The dollar rose to $1.4197 per euro from $1.4226.
The pound dropped to $1.6407 from $1.6459. Australia’s dollar fell 0.3 percent to 76.48 yen and slipped 0.3 percent to 81.61 U.S. cents. New Zealand’s dollar lost 0.3 percent to 65.57 cents and slid 0.4 percent to 61.44 yen.
Bernanke Comments
The Australian and New Zealand dollars dropped for the first time in three days against the greenback after Bernanke said yesterday financial markets remained “stressed,” encouraging demand for safer assets.
Household spending is an “important” risk to the outlook because of continued job losses and declines in home values, Bernanke said on the first day of a two-day congressional testimony in Washington.
“A bit of risk aversion is creeping back into the market,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. Bernanke “was more dovish on the economy and on the economic recovery and a little bit of risk has been taken off the table which is weakening the Aussie.”
The pound dropped against 13 of the 16 major currencies after the National Institute of Economic and Social Research said today that home values will resume their decline because recent gains were driven by a lack of available homes.
The institute also predicted gross domestic product will keep falling until the final quarter of this year. It forecast GDP will shrink 0.4 percent in the second quarter. The median estimate of 32 economists in a Bloomberg News survey is for a 0.3 percent drop. The Office for National Statistics will release the data on July 24.
‘Not Good News’
“All of this is not good news for Britain,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This is leading to selling of the pound.”
The pound also fell after the Telegraph reported that Barclays Plc will need another 12.8 billion pounds ($21 billion) and Royal Bank of Scotland Group Plc will require an additional 8.5 billion pounds to expand under new regulatory rules. The U.K. newspaper cited Carla Antunes da Silva, a banking analyst at JPMorgan Securities Ltd., as saying. She said HSBC Holdings Plc had a 3 billion pound shortfall.
“The Telegraph story came as a reminder that the financial crisis is not fully over,” said Shuzo Kakuta, senior foreign exchange advisor at Tokyo Tomin Bank Ltd. “This kind of topic is positive for the yen both against the dollar and cross- currencies” such as the Australian dollar.
Equities Gain
Gains in the Japanese and U.S. currencies were tempered on speculation an advance in Asian stocks will spur investors to increase holdings of higher-yielding assets. The Nikkei 225 Stock Average rose 1 percent and the MSCI Asia-Pacific Index of regional shares climbed 0.5 percent.
“Rising equities are likely to lead to selling of the yen,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The stock markets are considered to be a barometer of risk appetite.”
Australia’s dollar may advance toward a 10-month high after the currency climbed above a “pivotal resistance” point at 81.55 U.S. cents, BNP Paribas SA said, citing trading patterns.
The so-called Aussie dollar has slipped 1.2 percent from this year’s high of 82.63 U.S. cents on June 3 as investors sold higher-yielding assets on concern that the second-quarter corporate earnings season would disappoint. The break above 81.55 cents suggests the recent “corrective pullback” is over, Andrew Chaveriat, a technical strategist at BNP Paribas in New York, wrote in a note to clients yesterday.
“Aussie should make a new cycle high,” Chaveriat wrote. Weekly momentum is expected to turn bullish, which “would increase the odds of hitting 83.80-85.20 cents.”