Yen tumbles after Bernanke assures support for economy

Tokyo: The yen dropped against all of its 16 most-traded counterparts at the end of last week after Federal Reserve Chairman Ben S. Bernanke pledged to safeguard the economic recovery, damping investor appetite for haven currencies.

The euro rose versus the yen and the dollar, erasing losses against the greenback, as stocks climbed after data showed US economic growth slowed less than forecast in the second quarter. The yen also weakened as Prime Minister Naoto Kan said Japan is willing to take "bold" action to lower its value.

"Risk flows came back into the market, so that has really helped the Aussie" and other higher-yielding currencies, said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. "Things are not as bad as the market had feared."

The yen fell 1 per cent to 85.26 per dollar (Dh3.67) in New York, from 84.45 on Friday, paring a weekly gain to 0.4 per cent. It touched 83.60 on August 24, the strongest level since 1995. The Japanese currency dropped 1.1 per cent to 108.57 yen per euro, from 107.39, while gaining 0.2 per cent for the week. The dollar weakened 0.1 per cent to $1.2734 per euro, from $1.2716, and fell for the first week since the five days ended August 6, slipping 0.2 per cent.

The Standard & Poor's 500 Index gained 1.7 percent, and the MSCI World Index rose 1.2 per cent.

"Since we're seeing equities in positive territory, that's when those more growth-reliant currencies tend to perform better," said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency-exchange network. "That's more of the risk-on play."

Most gains

The currencies of Australia and New Zealand, both countries that rely on exports of raw materials, gained the most versus the greenback. The Aussie climbed 1.4 per cent to 89.87 US cents and the kiwi, as New Zealand's dollar is known, added 1.4 per cent to 71.25 US cents. The greenback fell against most of its major counterparts.

The Polish currency gained the most among its emerging- market counterparts against the euro after two central bankers said the nation's interest rate will probably rise this year because of the prospect of accelerating inflation. The zloty appreciated 0.8 per cent to 3.9675 per euro.

The Fed "will do all that it can" to ensure a continuation of the economic recovery, Bernanke said in a speech to central bankers from around the world at the Kansas City Fed's annual monetary symposium in Jackson Hole, Wyoming. He discussed steps the Fed might take if expansion slows.

Bernanke said growth during the past year has been "too slow" and unemployment "too high". Still, he said a handoff from fiscal stimulus and inventory re-stocking to consumer spending and business investment "appears to be under way".

Fed officials put their stimulus-exit strategy on hold this month and decided to purchase Treasury securities with principal payments from the bank's mortgage holdings to keep its portfolio from shrinking as the mortgage bonds mature. It earlier acquired Treasuries and mortgage debt to help spur growth, a strategy known as quantitative easing, before ending the buys this year. It has kept the benchmark interest rate at a range of zero to 0.25 per cent since December 2008.

The Canadian dollar, nicknamed the loonie for the image of the bird on the C$1 coin, may benefit the most among major currencies if the Fed decides to ease monetary policy further, Barclays Plc said.

"If there is another round of quantitative easing, the Canadian dollar may be the big winner," Yuki Sakasai, a Tokyo-based currency strategist at Barclays, wrote in a research note Saturday.