Dollar falls 3% vs. yen on central bank inaction – Currencies

NEW YORK (MarketWatch) — The U.S. dollar plunged nearly 3% against the Japanese yen on Tuesday after Japan’s central bank offered no new easing moves in its latest policy decision.

The Japanese yen USDJPY +0.1548% gained ground after the Bank of Japan disappointed some market participants who had wanted it to extend the duration on its ultra-low-interest loans to banks.

Emerging markets stocks and currencies were hit hard on Tuesday.

The dollar fell 2.6% to ¥96.22 in recent trade after hitting an intraday low of ¥95.56 earlier, according to FactSet data. The greenback hasn’t ended the day below ¥96 in more than two months, the data show.

The reaction to the Bank of Japan’s unchanged policy was felt across markets as Japanese, European and U.S stocks fell and Treasurys fluctuated. It is another indication of how central bank action has begun to dictate daily movements across markets as investors begin anticipating a potential tapering of quantitative easing in the U.S.

The dollar is still up nearly 11% against the yen this year but has come off significantly from its late-May highs above ¥103, which it made on expectations the Federal Reserve would soon begin paring back its aggressive bond-buying operations.

While profit-taking might drive the dollar-yen lower in the short term, Japan still has an aggressive monetary policy which should weigh on the yen in the long term, said Camilla Sutton, chief FX strategist at Scotiabank. She has an year-end target of ¥105 for the dollar.

Separately, U.S. wholesale inventories rose 0.2% in April and data showed positive signs for the jobs market.

The ICE dollar index DXY +0.08% — which tracks the greenback against six rivals — fell to 81.128 from 81.667 late Monday, while the WSJ Dollar Index XX:BUXX +0.02% — which uses a slightly wider comparison basket — dropped to 73.08 from 73.71.

The euro rose against the dollar EURUSD -0.0225% , trading at $1.3305 recently, higher than $1.3254, and the British pound GBPUSD -0.0072% rose to $1.5634 from $1.5571. Germany’s constitutional court is debating whether the European Central Bank’s Outright Monetary Transactions — a yet-to-be-used program to buy bonds from struggling euro-bloc nations — is allowable under German law.

The dollar continued to gain against commodity currencies on Tuesday.

“The dominant story is really the weakness you’re seeing in commodity currencies that is part of this selloff in risky currencies more broadly, that’s been led by the emerging world,” said Alan Ruskin, a currency strategist at Deutsche Bank in New York.

The New Zealand dollar NZDUSD +0.6304% fell to 78.80 U.S. cents from 78.86 U.S. cents.

Slowing growth in China — illustrated by a slate of recent lackluster data including a decline in export growth -— is of special concern to Australia, which counts China as its largest trading partner.

The Australian dollar AUDUSD +0.3021% fell to 94.46 U.S. cents from late Monday’s 94.59 U.S. cents. A National Australia Bank survey out Tuesday showed business sentiment remained negative in May.

The Aussie has marched steadily lower in recent weeks, after having lost parity with the U.S. dollar in mid-May. But Crédit Agricole strategists said Tuesday that the currency is oversold and could soon rebound.

“Going forward, we expect [the Australian dollar’s] downside to become increasingly limited from current levels and advise against speculating on much more downside,” they wrote, citing improving risk sentiment as a factor in the currency’s favor. The also said the Aussie could benefit from dashed hopes surrounding the Reserve Bank of Australia (RBA).

“Market expectations for two more interest-rate cuts by the RBA over the coming 12 months may prove excessive, unless domestic growth conditions weaken considerably further,” they said.

The Colombian peso also fell along with emerging-market currencies. Turkey’s central bank on Tuesday said it would sell U.S. dollars in auctions as part of an attempt to stabilize the lira. Prior to central-back action, Turkey’s lira had declined amid ongoing protests in Istanbul.

Seo

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Won Falls to One-Month Low on Fed Policy Risk; Bonds Decline

South Korea’s won fell to a one-month low on concern U.S. policy makers will reduce monetary stimulus that has fueled demand for emerging-market assets. Government bonds fell.

The dollar strengthened against all major peers and Treasury yields rose to the highest in two months after Federal Reserve Chairman Ben S. Bernanke said yesterday the central bank may taper monthly bond purchases if it’s confident of sustained gains in the U.S. economy. South Korea’s economy is still going through a “slump” and a sliding yen is hurting the nation’s exports, Finance Minister Hyun Oh Seok said today.

The won dropped 0.7 percent to 1,121.71 per dollar as of 10:44 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,124.01, the lowest level since April 22. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 42 basis points, or 0.42 percentage point, to 8.95 percent, the data show.

“Bernanke’s comments were a signal for investors to pull out of riskier assets,” said Hong Seok Chan, an analyst at Daishin Economic Research Institute in Seoul. “The won may trade near the 1,120 per dollar level as some exporters may sell dollars.”

The Fed could “take a step down in our pace of purchases” from $85 billion a month in the “next few meetings,” Bernanke said yesterday in a testimony to the Joint Economic Committee of Congress in Washington. He defended the central bank’s record stimulus program, telling lawmakers that ending it prematurely would endanger a recovery hampered by high unemployment and government spending cuts.

Dollar, Yen

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, added 0.1 percent to 84.438. The yen weakened 0.2 percent to 103.37 per dollar.

The won has fallen 5.1 percent versus the dollar and gained 14 percent against the yen this year. That makes it harder for South Korean exporters such as Samsung Electronics Co. and Hyundai Motor Co. to compete against Japanese rivals overseas.

“The fact that the won is not a key currency exposes the Korean economy to foreign-exchange risks,” Finance Minister Hyun said at a forum in Seoul. The yen’s slide against the dollar has had a “considerable impact on our exports,” he said.

The yield on South Korea’s 2.75 percent government bonds due March 2018 rose four basis points to 2.74 percent, according to prices from Korea Exchange Inc.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51

To contact the editor responsible for this story: James Regan at jregan19

Won Erases Loss as South Korea Targets Volatility; Bonds Decline

Won Erases Loss as South Korea Targets Volatility; Bonds Decline

The won recovered from a four-week low after South Korea said it will act to curb currency swings amid renewed regional tensions as North Korea fired missiles. Government bonds declined.

Finance Minister Hyun Oh Seok said South Korea should seek to limit the won’s volatility if it intensifies because of the yen’s slide, according to Choi Hee Nam, the ministry’s director general. Financial Services Commission Chairman Shin Je Yoon said today foreign-currency liquidity will be closely monitored as North Korean risks escalate. The North fired a short-range missile for a third day today, the South’s Defense Ministry said. That followed four such tests over the weekend.

The won closed at 1,116.63 per dollar in Seoul, little changed from 1,116.60 on May 16, according to data compiled by Bloomberg. It earlier touched 1,121.08, the weakest level since April 23. South Korean markets were closed on May 17 for a public holiday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 18 basis points, or 0.18 percentage point, to 8.98 percent.

“The authorities expressing concerns about the won’s volatility helped prevent investors from aggressively selling the currency amid missile firings by North Korea,” said Son Eun Jeong, an analyst at Woori Futures Co. in Seoul. “The government seems more concerned about the weak yen hurting the South Korean economy.”

The yen’s depreciation has been much faster than previously anticipated and competitiveness of Korean companies should be strengthened to fight currency volatility, the Finance Ministry’s Choi said.

Yen Moves

The won has fallen 4.7 percent versus the dollar and gained 14 percent against the yen this year. That makes it harder for South Korean exporters such as Samsung Electronics Co. and Hyundai Motor Co. to compete against Japanese rivals overseas. Foreign funds sold $4.7 billion more Korean equities than they bought this year through May 16, exchange data show.

The yen gained 0.6 percent today after reaching 103.31 per dollar on May 17, its weakest level since October 2008, data compiled by Bloomberg show. Citigroup Inc. said in a May 17 research note the yen’s weakness and geopolitical risks were weighing on the won.

South Korea urged the North to accept its repeated calls for working-level talks on bringing completed goods to the South from the Gaeseong industrial zone, the Unification Ministry spokesman Kim Hyung Suk said at a briefing yesterday. The jointly-run factory in the North Korean border city of Gaeseong has been shut since the North decided on April 8 to withdraw all its workers from the complex.

The yield on South Korea’s 2.75 percent government bonds due March 2018 climbed four basis points to 2.69 percent, the highest level since April 17, prices from Korea Exchange Inc. show.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51

To contact the editor responsible for this story: James Regan at jregan19

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History Repeating in Yen Decline Reminds UBS of 1995: Currencies

History Repeating in Yen Decline Reminds UBS of 1995: Currencies

The currency market is experiencing a bout of deja vu, with the yen’s tumble to a 4 1/2-year low and the dollar’s rebound drawing resemblances to 1995.

Just as 18 years ago, the Bank of Japan is taking unprecedented steps to boost the economy and U.S. growth is showing signs of strengthening, raising speculation the Federal Reserve will temper its stimulus. Back then, the events marked the start of a three-year slide for the yen and a long-term bull market in the greenback that pushed the U.S. Dollar Index (DXY) higher in five of the following six years.

The year “1995 continues to offer striking parallels with current market developments,” said Mansoor Mohi-uddin, the Singapore-based head of foreign-exchange strategy at UBS AG (UBSN), the world’s fourth-largest currency trader as measured by Euromoney Institutional Investor Plc. (ERM) “The divergence between the two central banks will help keep pushing the dollar-yen higher.”

After weakening 15 percent this year, the yen is less than halfway through a drop that will take it to 120 in 2014, according to Mohi-uddin’s forecast. Group of Seven countries’ finance chiefs signaled acceptance of the yen’s slide after meeting late last week in Aylesbury, near London, as the BOJ tries to end years of deflation by flooding the financial system with cash.

Dollar Boost

At the same time, the greenback is getting a boost as U.S. jobs and housing rebound. The Dollar Index has risen 6.1 percent to a nine-month high of 83.941 today from this year’s intraday low of 78.918 on Feb. 1 as employers added an average of about 196,000 workers in the first four months of 2013.

“The recovery in the U.S. economy in 2013 is likely to provide a tailwind for yen-selling,” Taisuke Tanaka, the chief foreign-exchange strategist and head of fixed-income research at Deutsche Bank AG, the biggest currency trader in a Euromoney poll, said in a seminar in Tokyo yesterday.

The yen touched 102.76 today in New York, the weakest since Oct. 14, 2008. It declined 0.1 percent to 102.51 as of 12:35 p.m. in New York.

The pace of the yen’s drop has forced strategists to rush to catch up, cutting their estimates versus the dollar and the euro by the most among more than 50 currency pairs tracked by Bloomberg.

Analysts have lowered year-end forecasts for the yen by 17.1 percent since December, to 105 per dollar from 87, according to the median of more than 50 estimates compiled by Bloomberg. Mohi-uddin and Tanaka said they see it at 110 by the end of this year.

Buying Bonds

Against Europe’s 17-nation currency, the forecast has been trimmed 17.4 percent to 132 per euro from 109. Estimates are for the Japanese currency to fall to 110 to the dollar in 2014.

Mohi-uddin predicts the dollar will strengthen about 8 percent against both the euro and the British pound and more than 3 percent versus the Swiss franc. The U.S. currency was at $1.2902 per euro and $1.5215 to the pound. The franc was at 96.65 centimes per dollar.

The yen has tumbled about 9 percent since new BOJ Governor Haruhiko Kuroda said April 4 the central bank would buy at least 7 trillion yen ($68.5 billion) of government bonds a month to achieve a 2 percent annual inflation target within two years. The plan accelerated a decline kick-started by Prime Minister Shinzo Abe in November, when he called for “unlimited” easing to defeat deflation.

Turning Point

The effect of the central bank’s monetary is “so far, so good,” though a level of 110 yen to the dollar would be “too weak,” said Eisuke Sakakibara, a former Japanese vice-finance minister known as “Mr Yen” for his influence on exchange rates in the 1990s.

“It will probably weaken toward 105, but it will probably turn around in the range between 105 and 110, because the Japanese economy at this moment is very strong, and with a strong economy, a currency does not keep falling,” Sakakibara said in an interview.

“The difference in the policy outlook for Japan, where it’s uncertain it can achieve its inflation target by 2015 even after doubling the monetary base, and the Fed, where it’s standing ready to exit quantitative easing, is crystal clear,” said Daisaku Ueno, a senior currency and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.

Fed policy makers are buying about $85 billion of Treasuries and mortgages securities a month to foster the recovery. The median estimates of economists surveyed by Bloomberg is for gross domestic product to expand by an annualized 2.6 percent by year-end, while Japan’s inflation rate remains under 0.5 percent.

Unprecedented ‘Intensity’

“The current yen-bear cycle seems to have an intensity that we’ve never seen before,” Ueno said.

For UBS’s Mohi-uddin, the yen’s decline echoes the three-year depreciation that started in the mid-1990s, to a eight-year low of 147.66 per dollar in August 1998 from a then post-World War II record of 79.75 in April 1995.

That slide followed the BOJ switching its policy target to an overnight money-market rate for the first time to boost the effects of monetary easing. Investor concern that Japanese banks’ creditworthiness was declining and the impact of the Asian regional crisis also weakened the currency in the 1990s.

Intervention Halted

Japan and its Asian neighbors aren’t suffering from those problems now. And while Japan sold 4.96 trillion yen of its currency in 1995, according to Ministry of Finance figures, it hasn’t intervened in the foreign-exchange market since November 2011 following the currency’s climb to a record 75.35.

“We’re seeing yen depreciation from a fairly neutral valuation, even without intervention,” said Junya Tanase, the chief currency strategist at JPMorgan Chase & Co. in Tokyo.

The yen has weakened 21 percent in the past six months, making it the biggest loser among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The real effective exchange rate fell to 67.49 in last month, the lowest level since October 2007, data compiled by JPMorgan show. The gauge surged to a record high 121.53 in April 1995.

As Japan ramps up monetary easing, signs of an improvement in the U.S. are signaling less need for central bank stimulus in the world’s largest economy. Charles Plosser, president of the Fed Bank of Philadelphia, said this week that he favors reducing bond purchases that have pumped more than $2 trillion into the economy and weighed on the dollar.

“Before Governor Kuroda dropped the stimulus bomb, dollar-yen had been driven mainly by the performance of U.S. economy and Fed policy,” said Ueno of Mitsubishi UFJ. “The current cycle could be the first one to be driven by domestic factors.”

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9; Hiroko Komiya in Tokyo at hkomiya1

To contact the editor responsible for this story: Rocky Swift at rswift5

 

B. regards

Felix (Kyung) Seo

Japanese Yen by Jim O’Neill of Goldman Sachs

CNBC.com 05/04/13 4:53 AM ET
By: Reporting by Louisa Bojesen, Writing by Katy Barnato

Renowned investor Jim O’Neill ended his 18-year career at Goldman Sachs by forecasting the yen will continue declining, pushing through the key 100-level against the U.S. dollar.

“I can see the yen at 100 to 120 in the next 18 months, but getting through the 100-barrier is going to require a couple of trickier things,” O’Neill, the outgoing chair of Goldman Sachs Asset Management, told CNBC, in his last interview pre-retirement. “One, is that the U.S. is definitely doing better, and with it, acceptance from the U.S. that continual yen weakness is not going to be really bad for U.S. competitiveness.”

(Read More: Stocks Soar on Jobs Data, but Economic Dangers Lurk)

“Secondly, linked to that, that Japan is showing more domestic recovery, so that some of their Asian competitors do not freak out—obviously for South Korea, and for China, it is a big deal,” he said.

The yen has flirted with the psychologically important 100-level since early April, when the Bank of Japan Governor Haruhiko Kuroda unveiled a massive stimulus to help meet the central bank’s 2 percent inflation target.

(Read More: Why the Hype Over Dollar-Yen at 100 Is Overdone)

While O’Neill found international fame when he coined the term BRIC to describe the emerging economies of Brazil, Russia, India, and China, he was originally recruited by Goldman Sachs due to his success as a currency specialist. In particular, O’Neill successfully forecast the yen’s rise in the mid-1990s, and the euro’s decline in 2005.

“I really try and pride myself on the yen, because that is what led me to be hired by Goldman Sachs, my supposed success as a currency person in the ’90s,” O’Neill, told CNBC. “People think of me as Mr. BRIC, but currency is my first love, despite the fact it is like the world’s biggest fruit and vegetable stall. You can only be a hero for 15 minutes in something as transparent as the foreign-exchange market.”

O’Neill said the term BRIC remains valid 12 years on from his famous report, irrespective of the importance ascribed to other emerging countries like Mexico and Indonesia.

“In terms of sheer economic size, which is what the original idea of mine was, there are no other four emerging economies that can vaguely compete with them. … What all four share—and China is in a league of its own—is they are much bigger than any other emerging market,” he said.

Unexpectedly, O’Neill said the catalyst for penning “Building Better Economic Global BRICs” in 2001 was the Sept. 11, 2001, terrorist attacks.

“I concluded—perhaps a bit oddly, and occasionally to the annoyance of some Americans—that this kind of horror meant that going forward, if globalization were to thrive, it would have to be different. It could not be equated with Americanization. … In that sense, the BRICs thing does not just mean those four countries, it is a statement about a more complex world, needing better economic bricks.”

In his final research paper for Goldman Sachs, O’Neill reviewed his first BRIC report, and noted that global policymakers had yet to adjust to a world where emerging countries are key players.

“I still do not think many, outside Western multinationals and the BRIC policymakers themselves, truly understand the degree to which the world is changing. Global governance has perhaps moved in the right direction with the advent of the G-20, but it has not moved particularly far towards a more workable or effective condition,” he said in his last paper, entitled, “The world still needs better economic BRICs.”

O’Neill was cagey about his post-Goldman plans, having dismissed working for a rival investment bank in a previous CNBC interview, saying that working anywhere else would be “downhill.”

(Read More: O’Neill: I Wouldn’t Put My Family Money in Bunds)

He did say however that he had always planned to leave Goldman’s at the peak of his game.

“It is a really competitive, tough place, and to keep the place churning around, and the strength that it has, it needs to have turnover,” he said. “I did not quite fancy the phone call saying, ‘Isn’t it about time you call it a day?'”

B. regards

Felix (Kyung) Seo