Dollar falls vs. yen as U.S. jobs data fuel Fed speculation

Japan Markets

Japan’s shares tumbled and the yen rallied yesterday after Abe said a legislative campaign to loosen rules on businesses, the “third arrow” of his revival plan, won’t begin for months.

The Government Pension Investment Fund said today it will cut its allocation to Japanese bonds to 60% from 67%. Japan’s Ministry of Health, Labour and Welfare said the GPIF, the world’s biggest manager of retirement savings, will increase its allocation of domestic stocks to 12% from 11%, according to a statement from the health ministry.

The fund will increase its allocation of foreign stocks to 12% from 9% and for foreign bonds to 11% from 8%.

Futures traders increased bets the yen will weaken against the dollar to the most since July 2007. The difference in the number of wagers by hedge funds and other large speculators on a decline in Japan’s currency compared with those on a gain, known as net shorts, was 99,769 contracts on May 28, versus 95,186 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.

“We’re seeing large unwinding of carry trades and violent moves in dollar-yen,” said Kikuko Takeda, a senior analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s been both strong and weak U.S. data so it’s hard to take a one-sided view of the U.S. economy or Fed policy.” A carry trade involves borrowing in low-interest-rate currencies to buy higher-yielding assets.

Deutsche Bank AG’s G10 FX Carry Basket index fell 2.8% this week, erasing this year’s advance.

The yen has surged 4.7% in the past month, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 2.2% and the dollar climbed 0.7%.

www.bloomberg.com

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