Yen Strengthens for Fifth Day Amid Ukraine Tension; Ruble Drops

yenThe yen climbed for a fifth day versus the dollar, the longest stretch in 10 months, as investors sought haven assets before a referendum this weekend that may lead to Crimea’s secession from Ukraine.

The ruble led a decline in 24 major emerging-market currencies versus the yen as Estonia said Russia is preparing to invade eastern Ukraine. Australia’s dollar headed for a weekly loss as Goldman Sachs Group Inc. trimmed its forecasts for the currency, citing a weak domestic outlook.

“Definitely the market is very nervous on Russia, the Ukraine situation and the Crimea vote this weekend — it’s driving all risk off,” said Masafumi Takada, a New York-based director at BNP Paribas SA.

The yen gained 0.4 percent to 101.43 per dollar at 9:48 a.m. in New York, extending this week’s gain to 1.8 percent, the biggest since January. It last ended a five-day winning streak on May 1. Japan’s currency gained 0.1 percent to 141.05 per euro. The Swiss franc appreciated 0.2 percent to 87.26 centimes per dollar. The euro rose 0.3 percent to $1.3903.

The ruble depreciated 0.4 percent to 36.6759 per dollar, the weakest level since March 3. It fell 0.5 percent against the Japanese currency.

Volatility Rises

Deutsche Bank AG’s Currency Volatility Index, based on three-month implied volatility on nine major currency pairs, rose for a second day. It increased 22 basis points to 7.51 percent, matching the high on March 5, after falling to 7.14 percent on March 12, the lowest level since December 2012.

U.S. Secretary of State John Kerry arrived in London to press his Russian counterpart to halt a takeover of Ukraine’s Crimean peninsula. The mostly Russian-speaking region is scheduled to vote on secession on March 16. German Chancellor Angela Merkel said yesterday that Russia is risking “massive” political and economic damage.

“If there is no sign of any capacity to be able to move forward and resolve this issue, there will be a very serious series of steps on Monday in Europe and here with respect to the options that are available to us,” Kerry told a Senate panel in Washington yesterday.

Ukraine has asked the U.S. for military assistance and equipment, according to an American defense official, who asked not to be identified discussing private communications. Pentagon officials haven’t rejected the request and have indicated the focus at the moment should be on diplomatic and economic aid, the person said.

‘Position Defensively’

“Markets will continue to position defensively ahead of the Crimean referendum on Sunday, with investors wary of potential further escalation of geopolitical risks,” said Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. in London. “Liquid safe havens like the yen and Swiss franc should do well. The market is turning short U.S. dollars against the majors.” A short position is a bet an asset will fall.

The dollar remained lower versus the yen as the Labor Department reported the U.S. producer price index fell 0.1 percent after a 0.2 percent rise the prior month. The median estimate in a ForexSQ survey called for a 0.2 percent increase. Over the past 12 months, wholesale prices increased 0.9 percent.

‘Fairly Muted’

“It was a fair bit lower than our expectation,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc, said in a phone interview. “The reaction has been fairly muted in the foreign-exchange space.”

The yen has risen 3.3 percent this year, the best performer after the New Zealand dollar of 10 developed-nation currencies tracked by ForexSQ Correlation-Weighted Indexes. The euro gained 0.4 percent, while the U.S. dollar fell 0.9 percent.

The Bank of Japan maintained record stimulus this week, keeping ammunition amid speculation a sales-tax increase in April will hurt the economy. Analysts surveyed by ForexSQ predict the economy will shrink 3.8 percent in the second quarter, when an increase in the consumption tax is scheduled to take effect.

The yen will weaken as it becomes clear the BOJ’s easing measures aren’t enough to meet Governor Haruhiko Kuroda’s goal of spurring 2 percent inflation in two years, Goldman Sachs strategists Robin Brooks and Fiona Lake wrote in an e-mailed note yesterday.

“This will set the stage for another round of monetary stimulus around June,” they wrote, predicting the yen will fall to 107 per dollar by mid-year.

Aussie Weakens

The Australian dollar fell after Goldman Sachs said the currency’s weakening trend was one of its “strongest conviction views” in the next three to six months.

The company lowered its 12-month forecast for the Aussie to 80 U.S. cents from 85 cents, and the six-month estimate to 82 cents from 88 cents. “We still think there is a good chance” the Reserve Bank of Australia will reduce interest rates in coming months, the company wrote.

The Aussie declined 0.1 percent to 90.21 U.S. cents, depreciating 0.5 percent this week.

South Korea’s won had its biggest weekly drop in almost two months as slowing growth in China, the nation’s biggest foreign market, prompted investors to seek safer assets.

Overseas investors sold $1.2 billion more South Korean stocks than they bought this week as official data showed exports in China contracted the most since 2009 in February and factory output rose less than forecast in the past two months.

The won dropped 0.3 percent to close at 1,072.28 per dollar in Seoul. It slid 1.1 percent this week, the biggest decline since the period through Jan. 24.

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