Yen falls as Japan funds buy overseas assets

ASIAN CURRENCIES ROUND-UP

The yen declined against the dollar and euro as speculation the Bank of Japan will refrain from raising interest rates may prompt fund managers to invest in higher-yielding assets abroad.

Japan's yen fell versus 14 of the 16 major currencies today, dropping the most against the South Africa rand and the Australian dollar. Financial companies in Japan will sell more than 1 trillion yen ($8.8 billion) of funds aimed at overseas markets, Bloomberg data shows. The Bank of Japan will keep its benchmark rate at 0.5 per cent tomorrow, according to economists.

The yen dropped to 113.41 against the dollar at 10:21 am in London from 112.95 in New York yesterday. It slipped to 163.15 against the euro, from 162.64. South Africa's rand rose 0.8 per cent to 16.42 against the yen, Australia's dollar climbed 0.7 per cent to 97.48 and Brazil's real gained 0.5 per cent to 62.55.

The Bank of Japan will keep its benchmark rate on hold tomorrow after the Cabinet office maintained its overall view that the economy, in its 71st month of expansion, is recovering.

Yuan rises after China cuts treasury holdings
The yuan rose after a US government report showed that China cut its holdings of Treasuries for a third month in October, a sign the nation may be diversifying its foreign reserves.

The currency snapped a two-day loss against the dollar as China, the second largest buyer of US debt after Japan, decreased the amount in its portfolio by $8.6 billion to the least since August 2006.

The country set up a sovereign wealth fund in September to better manage a record $1.46 trillion in foreign reserves, the world's largest.

"China's cut in treasuries is one of the factors that has pushed up the yuan,'' said Wu Bingsong, a treasury dealer at Maybank Shanghai, a unit of Malaysia's largest bank by assets. "Trading tends to be lighter towards the Christmas holiday season.''

The yuan traded at 7.3852 a dollar as of the 5:30 pm close in Shanghai, from 7.3873 at close yesterday, according to the China Foreign Exchange Trade System. The currency has climbed 12 per cent since a peg to the dollar was scrapped in 2005 in favour of managing the yuan against a basket of currencies.

The foreign holdings of US equities, notes and bonds rose a net $114 billion in October, after a $15.4 billion increase in September, the Treasury Department said. Investors abroad snapped up more treasuries than in any month in almost two years, for a total of $2.309 trillion. China reduced holdings of debt to $388 billion from $396.7 billion in September and an all-time high of $421.1 billion in March.

Forward contracts in the yuan show that traders are betting on an 8.4 per cent appreciation in the currency to 6.8135 in the next 12 months. The median estimate of 28 analysts surveyed by Bloomberg News is for a 6.9 rate by the end of 2008.

Peso, won decline on global credit slump
The Philippine peso and South Korean won fell, leading Asian currencies lower, on concern the region's economies will be slowed by a global credit squeeze.

The peso had its biggest two-day decline since 2001 and the won reached a 3 2/1-month low on signs that a US housing slump will halt growth in the region's largest export market. Asian currencies also weakened as overseas investors sold more stocks than they bought in Taiwan, Korea and Philippines.

"Everybody is worried about what is happening in the US,'' said Roland Avante, treasurer at Chinatrust (Philippines) Commercial Bank in Manila. "This is weighing on the peso.''

The peso fell 0.8 per cent to 41.98 against the dollar at the 4 pm close of trading in Manila, according to Philippine Dealing. The won weakened 0.6 per cent to 939.40 a dollar, the lowest close since August 30, according to Seoul Money Brokerage Services.

An index of 10 regional currencies compiled by JPMorgan Chase has slipped for four days after the Asian Development Bank said on December 13 that growth will slow in developing economies next year due to rising commodity prices and volatile financial markets. Asia's economies are at risk from accelerating inflation, Fitch Ratings said a day later.

The peso traded near a two-week low against the dollar after a US report showed builders' confidence remained at the lowest since at least 1985 and manufacturing in New York grew less than forecast.