Looking For The Yen To Go Into Reverse. By Nicholas Hastings
The yen could be about to lose its safe haven mantle.
When that happens, the Japanese currency will reverse the gains it made against the dollar this year, taking it back down toward Y95 to the dollar.
At the moment, the dollar is trading down under Y90, with the Japanese currency benefiting from the rise in global risk aversion.
See the yen's recent strength against the dollar:
Click Image to Enlarge
Disappointment over the pace of the global recovery as well as concern over the debt problems enveloping peripheral euro zone countries have played in the yen's favor.
Recent data from the Chicago Mercantile Exchange showed net short positions in the yen against the dollar had been switched to net longs.
"The only currency more popular with investors than the dollar is the yen," said David Forrester, a currency strategist with Barclays Capital.
However, all that should start to change as the Japanese economy remains resolutely in recession and its deficit problems, similar to those sinking the euro, start to grab investor attention.
Background flows also are turning against the yen as the country's current account surplus shrinks and its own retail investors start to show more interest in external assets.
A reminder of the depths of Tokyo's problems came with the latest bank lending figures Monday, which showed a 1.5% decline in December. Following a 1.0% fall in November, this constituted the largest decline since September 2005.
The Bank of Japan's deputy governor, Hirohide Yamaguchi, warned a parliamentary committee that "severe conditions" will continue until the summer and that the economy could still hit another "soft patch."
So far, these economic problems--which are pushing Japan's own budget deficit to stratospheric levels--have yet to impinge on investor flows, unlike those into the euro, which are suffering from concern over the debts of some smaller euro zone members.
Japanese retail investors may, however, start to lead the way. According to The Royal Bank of Scotland, Japanese retail investors appear to have turned long the dollar again for the first time since last November and have been active buying on dips since the dollar fell to 88.60 last week.
Current account flows, which also have been largely yen positive given the size of the country's surplus with the rest of the world, also could be about to reverse.
With global economic data suggesting the downturn may well persist longer than expected, Japan's current account surplus will decline, and so will support for the yen.
Early Tuesday in Europe, risk appetite was higher, helped by a 0.5% advance in the Shanghai Composite Index as well as speculation over the European Union Council meeting Thursday that will be attended by European Central Bank President Jean-Claude Trichet. The meeting is expected to focus on the euro zone's fiscal problems.
The dollar rose to Y89.56 by 0745 GMT from Y89.30 late Monday in New York, according to EBS.
The euro was up at $1.3739 from $1.3659 and at Y123.11 from Y121.97.
When that happens, the Japanese currency will reverse the gains it made against the dollar this year, taking it back down toward Y95 to the dollar.
At the moment, the dollar is trading down under Y90, with the Japanese currency benefiting from the rise in global risk aversion.
See the yen's recent strength against the dollar:
Click Image to Enlarge
Disappointment over the pace of the global recovery as well as concern over the debt problems enveloping peripheral euro zone countries have played in the yen's favor.
Recent data from the Chicago Mercantile Exchange showed net short positions in the yen against the dollar had been switched to net longs.
"The only currency more popular with investors than the dollar is the yen," said David Forrester, a currency strategist with Barclays Capital.
However, all that should start to change as the Japanese economy remains resolutely in recession and its deficit problems, similar to those sinking the euro, start to grab investor attention.
Background flows also are turning against the yen as the country's current account surplus shrinks and its own retail investors start to show more interest in external assets.
A reminder of the depths of Tokyo's problems came with the latest bank lending figures Monday, which showed a 1.5% decline in December. Following a 1.0% fall in November, this constituted the largest decline since September 2005.
The Bank of Japan's deputy governor, Hirohide Yamaguchi, warned a parliamentary committee that "severe conditions" will continue until the summer and that the economy could still hit another "soft patch."
So far, these economic problems--which are pushing Japan's own budget deficit to stratospheric levels--have yet to impinge on investor flows, unlike those into the euro, which are suffering from concern over the debts of some smaller euro zone members.
Japanese retail investors may, however, start to lead the way. According to The Royal Bank of Scotland, Japanese retail investors appear to have turned long the dollar again for the first time since last November and have been active buying on dips since the dollar fell to 88.60 last week.
Current account flows, which also have been largely yen positive given the size of the country's surplus with the rest of the world, also could be about to reverse.
With global economic data suggesting the downturn may well persist longer than expected, Japan's current account surplus will decline, and so will support for the yen.
Early Tuesday in Europe, risk appetite was higher, helped by a 0.5% advance in the Shanghai Composite Index as well as speculation over the European Union Council meeting Thursday that will be attended by European Central Bank President Jean-Claude Trichet. The meeting is expected to focus on the euro zone's fiscal problems.
The dollar rose to Y89.56 by 0745 GMT from Y89.30 late Monday in New York, according to EBS.
The euro was up at $1.3739 from $1.3659 and at Y123.11 from Y121.97.
- 9 February |
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