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Yen Rises for Second Day as Stocks Fall Before Federal Reserve

The yen rose for a second day as falling stocks damped demand for the U.S. currency before Federal Reserve policy makers begin a two-day meeting today.

Japan’s currency rallied from near a six-year low against the dollar as a technical indicator signaled recent losses were excessive. Australia’s dollar snapped a six-day slide after minutes of the Reserve Bank’s policy meeting this month said interest rates should remain stable. The pound weakened versus most of its 16 major counterparts before Scotland votes on its independence this week.

“Dollar-yen has had a very strong rally on the back of very hawkish expectations from the FOMC this week,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “It looks like consolidation ahead of the FOMC, with the U.S. dollar giving back a portion of its gains,” she said, referring to the Federal Open Market Committee.

The yen gained 0.1 percent to 107.13 yen at 1:02 p.m. in Tokyo from yesterday, after touching 107.39 on Sept. 12, the lowest since September 2008. It was little changed at 138.66 per euro. The dollar traded at $1.2943 per euro after climbing 0.2 percent to $1.2940 yesterday. Japan’s markets reopened today after a holiday yesterday.

Japan’s Topix (TPX) index of shares fell 0.3 percent, while the Shanghai Composite Index dropped as much as 0.9 percent.

The 14-day relative strength index for the yen versus the dollar was at 20, below the 30 level that signals to some traders an asset has fallen too far, too fast, and may be due to reverse course.
Rate Bets

Fed funds futures data compiled by Bloomberg showed traders saw a 78 percent chance yesterday U.S. policy makers will raise the target for overnight loans between banks by their September 2015 meeting, up from 73 percent on Sept. 1. The rate has been in a range of zero to 0.25 percent since December 2008.

“We’re still looking for a stronger and supported U.S. dollar over time,” said Emma Lawson, a senior currency strategist at National Australia Bank Ltd. in Sydney. “You are seeing a general pickup in economic growth.”

Reports this month showed manufacturing and services growth in the world’s biggest economy accelerated in August, while the trade deficit narrowed in July.

The dollar has risen 3.4 percent in the past month, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has fallen 1.7 percent, the biggest decline within the gauges. The euro has lost 0.6 percent.
Forecast Raised

JPMorgan Chase & Co. said in a report today it sees the dollar climbing to 109 yen by the fourth quarter, up from a previous forecast of 106. It predicts the euro will rise to 142 yen over the same period, compared with a previous estimate of 138. The median projections in Bloomberg surveys of analysts put the dollar at 106 yen and the euro at 138 yen by Dec. 31. The Aussie rallied after touching a six-month low yesterday. Minutes published today of the Reserve Bank of Australia’s Sept. 2 meeting, when it kept the benchmark rate at 2.5 percent for a 12th-straight gathering, showed policy makers “considered that the most prudent course was likely to be a period of stability in interest rates.”

RBA Assistant Governor Christopher Kent said a further decline in the currency would support demand for local producers that compete with imports, in the text of a speech today at the Bloomberg Summit in Sydney.

The Aussie added 0.1 percent to 90.35 U.S. cents after declining yesterday to 89.84, the lowest since March.

The pound held a loss from yesterday before Scotland’s Sept. 18 referendum on its independence.

Scotland’s nationalists have a 45 percent chance of winning the referendum this week and there’s a risk of a capital flight from the country if that happens, according to a Bloomberg survey of economists.

Sterling was at $1.6229 from $1.6233 yesterday, when it dropped 0.2 percent.

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