Bernanke foresee some bank failures
- From: "truth" <truth@xxxxxxxxxxxx>
- Date: Fri, 29 Feb 2008 03:05:15 GMT
http://www.bloomberg.com/apps/news?pid=20601087&sid=aUMXW_ib2a9A&refer=home
Yen Rises to Highest in Almost Three Years on U.S. Bank Concern
By Ron Harui
Feb. 29 (Bloomberg) -- The yen rose to the highest in almost three years
against the dollar after Federal Reserve Chairman Ben S. Bernanke said some
small U.S. banks may collapse.
The currency headed for a second monthly gain after Bernanke told the Senate
yesterday ``there probably will be some bank failures,'' prompting investors
to cut holdings of higher- yielding assets bought with loans from Japan. The
dollar also headed for its biggest monthly loss against the euro since
September before a U.S. government report that will probably show consumer
spending stayed at the weakest in six months.
``There are renewed concerns over U.S. financial institutions, causing some
investors to be risk averse,'' said Hideaki Inoue, chief manager of
derivatives and fixed-income investment in Tokyo at Mitsubishi UFJ Trust and
Banking Corp., a unit of Japan's largest publicly traded bank by assets.
``The yen is being bought.''
The yen climbed to 104.58 against the dollar, the strongest since May 2005,
before trading at 104.71 as of 11:31 a.m. in Tokyo, from 105.37 late in New
York yesterday and 107.17 a week ago. It rose 0.7 percent to 158.98 per
euro, the largest gain in three weeks, from 160.10 yesterday and 158.99 last
week.
The dollar traded at $1.5176 per euro, near the record low of $1.5229
reached yesterday. The currency dropped to 3.1890 versus Malaysia's ringgit
and 31.90 against the Thai baht, both the weakest in more than a decade, on
speculation rate cuts in the U.S. will prompt fund managers to shift
investment into Asia.
The Japanese yen gained against all of the 16 most-active currencies today
as the MSCI Asia-Pacific Index of regional shares fell 1.2 percent. The yen
climbed 0.9 percent to 99.14 versus Australia's dollar, 0.6 percent to 85.43
to New Zealand's dollar and 0.9 percent to 13.8121 against South Africa's
rand.
Carry Trades
The currencies are favorites for so-called carry trades, in which investors
get funds in a nation with low borrowing costs and invest in one with higher
interest rates, earning the spread between the borrowing and lending rate.
The risk is that currency market moves erase those profits.
Implied volatility on one-month dollar-yen options rose to 12.9 percent, the
highest since Feb. 1, from 11.475 percent yesterday. Traders quote the gauge
of expectations for currency moves, as part of pricing options.
Japan's 0.5 percent benchmark interest rate compares with 7 percent in
Australia, 8.25 percent in New Zealand and 11 percent in South Africa.
There are some small banks ``that are heavily invested in real estate in
locales where prices have fallen and therefore they would be under some
pressure,'' Bernanke said. He added he doesn't expect ``any serious
problems'' among larger banks.
The dollar is the second-worst performer this month among 16 major
currencies against the euro as Bernanke also told the Senate panel that the
dollar's depreciation is ``a positive factor'' for reducing the U.S. trade
deficit.
`Bernanke Shock'
``This is the Bernanke shock, causing much faster dollar depreciation than
expected,'' said Michiyoshi Kato, a senior vice president of currency sales
in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest
publicly traded lender by assets. ``We are entering into another world of
dollar weakness. The Fed is not unhappy about that.''
The dollar weakened the most against Brazil's real this month, declining 5.3
percent. The Commerce Department may say today U.S. personal spending rose
0.2 percent last month, matching a gain in December that was the smallest
since June, according to a Bloomberg survey.
The U.S. currency has dropped 13.1 percent versus the euro in the past year
as subprime-mortgage losses, the worst housing market in 25 years and
soaring credit costs spurred the Fed to cut rates five times since
September. The U.S. Dollar Index, which tracks the currency against six
major counterparts, yesterday touched 73.63, the lowest since its start in
1973. The index is traded on ICE Futures in New York.
`Greater Threat'
The euro is 30 percent above its debut level, and up 84 percent from a
record low of 82.30 U.S. cents in October 2000.
After trading between $1.43 to $1.49 per euro since November, the dollar's
decline gained momentum after Fed Vice Chairman Donald Kohn said on Feb. 26
that credit market turmoil posed a ``greater threat'' than inflation. The
comments drove the euro above $1.50 for the first time. The dollar fell past
$1.51 on Feb. 27 after Bernanke told the House Financial Services Committee
the Fed ``will act in a timely manner'' to support growth.
``He said the Fed is in a more difficult situation than 2001,'' said Alan
Ruskin, head of international currency strategy in North America at RBS
Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``He sent a signal
that the Fed may be pushing on a string, and they will have to cut rates
more aggressively.''
Futures on the Chicago Board of Trade show traders see a 36 percent chance
the Fed will cut its benchmark rate to 2.25 percent from 3 percent on March
18, up from 2 percent a week ago. The rest of the odds are for a 50 basis
point cut.
European Central Bank President Jean-Claude Trichet yesterday said ``price
stability is a necessary condition'' for ongoing economic expansion. The ECB
next meets on March 6 to set its key rate, now at 4 percent.
To contact the reporters on this story: Kosuke Goto in Tokyo at
kgoto2@xxxxxxxxxxxxx ; Ron Harui in Singapore at rharui@xxxxxxxxxxxxx
.
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