Graphic: renjith krishnan

London - The yen rose to its strongest level in three months versus the euro as signs of fragility in some of the world’s biggest economies and declines in stocks spurred demand for the Japanese currency as a haven.

The dollar traded at almost the weakest level in almost two months against Japan’s currency after Treasury yields touched the lowest since October yesterday and Federal Reserve Chair Janet Yellen said the US has “further to go to achieve a healthy economy.”

The euro extended a second weekly drop as Greek bonds fell for the fifth time in six days.

India’s rupee rose as Sonia Gandhi conceded an election to Narendra Modi’s opposition bloc.

“Lower US yields are yen positive, as are weaker global equity markets,” said Adam Cole, head of Group-of-10 currency strategy at Royal Bank of Canada in London.

“We could see some capitulation on short yen positions,” he said, referring to bets the Japanese currency will weaken.

The yen advanced 0.2 percent to 138.92 per euro at 8:31 a.m. New York time and reached 138.78, a level unseen since February 12.

Japan’s currency advanced 0.1 percent to 101.47 per dollar after appreciating to 101.32 yesterday, the strongest level since March 19.

The euro dropped 0.1 percent to $1.3694 after falling to $1.3648 yesterday, the least since February 27.


Weekly Performance


The euro was set for a 0.8 percent drop versus the yen and a 0.5 percent decline against the dollar this week.

The MSCI All Country World Index slipped 0.2 percent today after a 0.7 percent decline yesterday, while Europe’s Stoxx 600 Index fell 0.4 percent.

Greece’s 10-year yield rose 12 basis points to 6.94 percent amid concern political turmoil will derail reforms in the country that sparked the sovereign-debt crisis.

Data yesterday showed euro-area gross domestic product rose 0.2 percent in the three months through March, half as much as economists forecast and matching growth in the fourth quarter.

The dollar-yen rate’s 120-day correlation with the gap between Treasury 10-year yields and their Japanese counterparts climbed to 0.57 on May 12, the highest since October 2010.

The extra yield offered by US government debt due in a decade over similar-maturity Japanese bonds fell to 1.90 percentage points yesterday, the least since October 29.


Falling Yields


“Falling US yields and the potential for further negativity on the risk-appetite front may make for a heavy USD-JPY in the near term,” Emmanuel Ng, a strategist at Oversea- Chinese Banking Corp., wrote in an e-mailed note to clients today, referring to a potential decline in the dollar-yen exchange rate.

The benchmark 10-year Treasury yield fell to 2.47 percent yesterday, the lowest since October 30.

It was little changed at 2.50 percent today.

Output at US factories decreased 0.6 percent last month after a revised 0.9 percent gain in March, according to a Fed report yesterday.

The median forecast in a Bloomberg News survey of economists was an unchanged reading.

Data from the Labor Department showed consumer prices rose 0.3 percent over the same period, from a 0.2 percent gain the previous month.

Job creation is “crucial” to the process of economic recovery and small companies “are responsible for a large share” of new employment, Yellen said yesterday in Washington in the text of remarks prepared for a speech to owners of small companies and officials from the US Small Business Administration.

Minutes of the Fed’s April 29-30 meeting, when policy makers decided to pare their monthly bond purchases to $45 billion, will be released next week.

In India, available poll results showed Modi’s opposition bloc was poised for the biggest Indian election win in 30 years.

The rupee appreciated 0.9 percent to 58.78 per dollar after touching 58.62, the strongest level since June, according to prices from local banks compiled by Bloomberg. - Bloomberg News