Yen Reverses Losses on Speculation Declines Overdone

  By Mariko Ishikawa - Mar 19, 2012 11:59 AM GMT+0400

The yen reversed daily losses against the euro and dollar on speculation its recent declines were excessive and as Asian stocks pared gains.

The euro touched a 4 1/2-month high against the yen after German Chancellor Angela Merkel said European officials have discussed combining the euro-area’s bailout funds to reinforce the region’s financial firewall. Demand for the 17-nation euro was also supported before Italian Prime Minister Mario Monti holds talks with unions and employers to revise labor laws.

The yen gained 0.5 percent to 109.37 per euro as of 7:55 a.m. in London after earlier sliding to 110.15 yen, the weakest since Oct. 31. Japan’s currency gained 0.4 percent to 83.08 per dollar. The common currency bought $1.3161 from $1.3175 on March 16.

The MSCI Asia Pacific Index (MXAP) of stocks rose as much as 0.4 percent before trimming gains to 0.2 percent.

The yen has declined 1.5 percent in the past week, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar lost 0.3 percent, while the euro slid 0.2 percent in the same period.

The greenback’s 14-day relative strength index against the yen was at 69.9 today, near the 70 level some traders see as a sign an asset may reverse direction. The euro’s RSI versus the yen was at 67.

European finance ministers have discussed “combination possibilities” for the permanent and temporary rescue funds ahead of a March 30 meeting in Copenhagen, Merkel said on March 16. Ministers may decide to increase the region’s crisis fund to a total capacity of 692 billion euros ($911 billion) when they meet, a euro-area official said separately.

An easing of Europe’s debt crisis has offered breathing room for Italy’s Monti to seek a labor-market overhaul. The Italian premier’s planned changes include a revision of firing rules and an expansion of jobless benefits.

The Australian dollar rose against the greenback after Reserve Bank Governor Glenn Stevens expressed confidence in China, the South Pacific nation’s largest trading partner. “China will have cycles like other economies, but it seems likely that the Chinese economy will grow pretty strongly on average for a while yet,” Stevens said, according to the text of a speech delivered in Hong Kong today.

The so-called Aussie climbed 0.2 percent to $1.0607.

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net