29.07.201306:54:51UTC+00Yen surges to month high as stocks decline on U.S., China concerns

The yen advanced versus its major counterpart as Asian shares pulled back amid concern about slowing growth in the world’s largest economies, boosting demand for haven assets.

The dollar dive to a one-month low against Japan’s currency before a private report forecast to show sales of previously owned U.S. homes declined and the Federal Open Market Committee starts a two-day meeting tomorrow. The Bloomberg Dollar Index reached the worst in five weeks as investors weighed whether the economy is robust enough for the Fed to trim down stimulus. Bank of Japan Governor Haruhiko Kuroda said it will take some time to reach a 2 percent inflation target.

Home Sales

An index of pending homes sales in the U.S. probably declined 1 percent in June from the previous month, when it increased 6.7 percent, according to the median estimate of economists surveyed by Bloomberg News before the National Association of Realtors releases the data today.

China Audit

In China, industrial companies reported slower profit growth and Premier Li Keqiang announced a nationwide audit of government borrowings amid concern bad debts may weigh down the world’s second-largest economy.

“This week’s busy events schedule hints at volatility ahead,” Sharon Zollner, a Wellington-based senior economist at ANZ Bank New Zealand Ltd., wrote in a note to clients. “Ben Bernanke and the rest of the FOMC are likely to choose their words carefully given the market’s proven extreme sensitivity to taper talk.”

The dollar-yen’s one-month implied volatility rose to 13.02 percent, poised for the highest close since July 19. The yen tends to strengthen during periods of financial and economic turmoil because Japan isn’t reliant on foreign capital to fund its deficits.

The currency pair is likely to stay in a range from 97.50 to 98.80, near the upper and lower end of the daily Ichimoku cloud, Mizuho’s Suzuki said.

Ichimoku Chart

Ichimoku charts are used to predict a currency’s direction by analyzing the midpoints of historical highs and lows. The cloud refers to the area between the first and second leading span lines on the chart and is used to show an area where buy orders may be clustered.

The BOJ’s Kuroda said in Tokyo today that Japan is on track to end deflation. The pace of increases in the consumer price index will gradually accelerate, he said.

The yen has tumbled 9.1 percent this year, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has gained the most, rising 4.8 percent, while the dollar has added 4 percent.

The euro was supported before European Central Bank policy makers meet in Frankfurt on Aug. 1, following a pick up in factory activity this month. Germany led the first expansion in euro-area manufacturing in two years, according to surveys of purchasing managers published last week by London-based Markit Economics, lending support to ECB President Mario Draghi’s prediction of an economic recovery later in 2013.

“Those signs of improvement were enough for this meeting to be less tense behind closed doors,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney. “It doesn’t mean that they shouldn’t and won’t ease policy soon, but not this week.”