The euro strengthened to an eight- month high against the yen as European Union chiefs pledged to seek a joint strategy for handling failing banks, boosting demand for the region’s assets.
The 17-nation currency headed for a weekly gain versus the dollar as EU leaders agreed to start work on a single resolution mechanism for euro-area banks to complement the European Central Bank’s oversight role approved yesterday. The yen fell to the weakest since March against the dollar after business confidence slid to the lowest in almost three years, supporting the case for more easing from the Bank of Japan.
“The news flow of the past few sessions has been generally supportive for the euro,” said Audrey Childe-Freeman, head of foreign-exchange strategy at Bank of Montreal in London. “For the yen, the combination of a risk-on context and speculation of a significant change in the monetary policy dynamics next year continue to weigh on it. The Tankan survey has also reinforced the case for a further BOJ easing.”
The euro rose 0.2 percent to 109.58 yen at 8:55 a.m. London time, after climbing to 109.98, the highest since April 2. The shared currency was little changed at $1.3078, having gained 1.2 percent this week. The yen fell 0.2 percent to 83.78 per dollar after dropping to 83.96, the weakest since March 21.
European leaders meeting in Brussels overnight said that banks should underwrite financial stability by repaying governments as needed.
Resolution “may not be at the cost of the taxpayers, but has to be structured so that those responsible for the failures of the banks carry the burden,” German Chancellor Angela Merkel told reporters after nine hours of talks.
Finance ministers meeting in Brussels on Thursday approved the next tranches of aid for Greece. Of the funds, 34.3 billion euros will be released within the next few days with the remaining money disbursed in the first quarter. The decision gives Greece an opportunity to end its crisis, Prime Minister Antonis Samaras said on Thursday.
The euro has gained 1.2 in the past month, the second best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the New Zealand dollar. The U.S. dollar fell 1.8 percent, and the yen tumbled 6.4 percent.
Japan’s currency headed for a fifth week of losses against the dollar as the BOJ said its Tankan index for large companies worsened to minus 12 in December, the lowest level since March 2010. A negative figure means the number of pessimists outnumber the optimists.
Opposition leader Shinzo Abe, whose Liberal Democratic Party leads in opinion polls before elections on Dec. 16, has called for a doubling of the central bank’s inflation goal to 2 percent and unlimited easing to revive growth.
“It’s reasonable to think that there would be some impact on BOJ policy from a change of leadership,” said Sean Callow, a Sydney-based senior currency strategist at Westpac Banking Corp. (WBC) “If Abe wins a comfortable mandate, he will certainly be keen to appoint somebody who is willing to take more aggressive steps.” The decline in the yen has been “striking,” he said.
The Australian dollar appreciated against most of its major counterparts after an industry report showed Chinese manufacturing may expand at a faster pace, boosting trade prospects for the South Pacific nation.
The so-called Aussie rose less than 0.1 percent to $1.0532, after rising to $1.0586 on Dec. 12, the highest since Sept. 14. It gained 0.2 percent to 88.24 yen.