Yen Near 2-Week Low on Japan Political Concern, U.S. Recovery

The yen traded near the lowest level in more than two weeks as political uncertainty in Japan and signs the U.S. economy is gaining traction tilted demand toward dollar-denominated assets.

The greenback also rose against Canada’s dollar and South Africa’s rand before reports forecast to show U.S. companies boosted payrolls while initial jobless claims fell. The yen slid on speculation Japan’s next leader will seek a weaker currency after Prime Minister Yukio Hatoyama’s resignation yesterday. Asian stocks extended a rebound in U.S. shares, boosting demand for higher-yielding currencies such as Australia’s dollar.

“U.S. economic data continue to show solid improvement and financial markets there are doing relatively well,” said Hiroshi Yanagisawa, a Tokyo-based dealer at FX Prime Corp., a foreign-exchange unit of Japanese trading house Itochu Corp. “Global money managers are more inclined to shift their money to the U.S.”

The Japanese currency was at 92.10 yen as of 9:54 a.m. in Tokyo from 92.13 in New York yesterday when it touched 92.36, the weakest level since May 18. The yen was at 112.99 per euro from 112.84 yesterday. The euro changed hands at $1.2269 from $1.2249 yesterday. It touched $1.2111 on June 1, the lowest level since April 2006.

South Africa’s rand fell to 7.6620 per dollar from 7.6603 yesterday. Canada’s currency slid to C$1.0393 per U.S. dollar from C$1.0383 yesterday.

U.S. companies created 70,000 jobs in May, according to a Bloomberg News survey of economists before the data’s release from ADP Employer Services today. Initial jobless claims fell to 455,000 in the five days ended May 29 from 460,000 in the previous week, a separate survey showed before today’s Commerce Department report.

Stocks Rebound

The Standard & Poor’s 500 Index climbed 2.6 percent, and the VIX index, a measure of market volatility known as Wall Street’s fear gauge, slid 15 percent yesterday, snapping a two- day advance as U.S. home sales topped forecasts.

The MSCI Asia Pacific Index of regional shares rose 1.5 percent today and the Nikkei 225 Stock Average added 2.2 percent.

“Once investors shift their attention back to the fundamentals, which are still signaling solid improvement, there is no strong reason to buy the yen,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “Underlying demand for higher-yielding assets outside Japan remains strong.”

Japanese investors boosted net purchases of foreign bonds to the most since September in the week ended May 28, according to data released today by the Ministry of Finance in Tokyo.

Hatoyama Successor

The Japanese currency fell against most major counterparts yesterday on speculation Hatoyama will be succeeded by Finance Minister Naoto Kan, who has called for the Bank of Japan to do more to fight deflation.

On his first day as finance chief on Jan. 7, Kan said he wanted the Japanese currency to weaken “a bit more” after it declined from a 14-year high of 84.83 per dollar in November. A stronger yen erodes profits of exporters, who have been leading Japan’s recovery from its worst postwar recession. On May 20, Kan said he expects the Bank of Japan to support the economy with “flexible and appropriate” policy.

“Kan, or whoever the successor is, won’t try to talk up the value of the yen,” said Kazumasa Yamaoka, a senior analyst in Tokyo at GCI Capital Co., an investment advisory company. “The market is looking to see a weaker yen.”

Hatoyama’s resignation came less than two months before mid-term elections, potentially hindering the Democratic Party of Japan’s efforts to reduce public debt.

Kan said yesterday he plans to run for leadership of the governing Democratic Party of Japan and the DPJ will vote on the new party leader tomorrow.