Frayed Nerves Keep Yen Bears At Bay. By Nicholas Hastings
Yen bears need more patience.
Yes, the yen will fall as they hope and expect.
Japan's gigantic debt, amounting to 200% of gross domestic product, will eventually become a problem, especially while the government continues to avoid spending cuts and tax rates.
Also, once the global recovery gains traction and interest rates start to rise in the U.S., yield differentials will play strongly against the Japanese currency, pushing the dollar forcefully up through Y95 and back towards Y100.
But this is not going to happen just now, and yen bears are going to have to wait.
Over the last week, investors have been bombarded with excuses to continue buying the Japanese currency as a safe haven.
In Europe, attempts by the European Union to create a safety net to prevent debt contagion have failed to boost market confidence. If anything, the threat of civil strife is growing and the risk of default, not only by Greece but by other euro-zone debtors, remains.
Also, the standing of the European Central Bank has been seriously damaged by the bank's decision to start buying government bonds. This is being taken as a resumption of quantitative easing, even despite the ECB's efforts to sterilize the move.
In the meantime, hopes for the global recovery and a return to 'normal' interest rates have been dented by data suggesting that market optimism may have got ahead of itself.
Minneapolis Fed President Narayana Kocherlakota reminded the market of this when he admitted that all members of the FOMC agree that U.S. rates should remain down near zero.
On a global level, even those economies that have been pulling out of recession well ahead of the rest, such as Australia and New Zealand, are showing signs of slower-than-expected growth.
This is being reflected in last week's decline in crude oil prices to a three-month low and expectations of more losses to come.
Although the dollar will often benefit alongside the yen in times of uncertainty, as investors head for safe havens, the dollar is being compromised this time around by the rising concern over U.S. banks. Apart from the prospect of increased regulation, the U.S. authorities are gradually widening their criminal probe, with the Securities and Exchange Commission now looking at six major banks for evidence that they misled credit rating agencies.
China is also proving a plus for the yen, as its economy shows little sign of slowing down significantly despite repeated attempts at tightening monetary policy.
This is increasing speculation--once again--that the Peoples' Bank of China will finally resort to a yuan revaluation to do the trick.
If so, the yen could find itself in heavy demand, seeing that the last time the Chinese revalued the yuan in 2005, the Japanese currency immediately rose by 2.7% against the dollar.
Apart from all this, there is one other reason to postpone any plans to start selling the yen again: positions.
According to data from J.P. Morgan, Japanese retail investors continue to hold fairly large negative positions in the currency. "We should be cautious on the risk of potential unwinding of yen shorts," said Junya Tanase, a strategist with the bank in Tokyo.
In early European trading hours Monday, the yen was trading roughly flat compared with its levels against the dollar late Friday in New York, with the dollar at Y92.03, according to trading system EBS.
The euro remained under heavy pressure, trading at $1.2295 against the dollar, from $1.24. It had earlier hit a four-year low at $1.2234. Persistent concern about the structure and outlook of the euro zone were behind the move.
Sterling was also under pressure amid concern that new U.K. Chancellor George Osborne might reveal some nasty shocks about the country's finances in his speech to launch the long-awaited Office for Budget Responsibility, which is due later in the European session. The pound traded at $1.4393, having earlier sunk to a 13-month low of $1.4256. It was at around $1.46 late Friday in New York.
Yes, the yen will fall as they hope and expect.
Japan's gigantic debt, amounting to 200% of gross domestic product, will eventually become a problem, especially while the government continues to avoid spending cuts and tax rates.
Also, once the global recovery gains traction and interest rates start to rise in the U.S., yield differentials will play strongly against the Japanese currency, pushing the dollar forcefully up through Y95 and back towards Y100.
But this is not going to happen just now, and yen bears are going to have to wait.
Over the last week, investors have been bombarded with excuses to continue buying the Japanese currency as a safe haven.
In Europe, attempts by the European Union to create a safety net to prevent debt contagion have failed to boost market confidence. If anything, the threat of civil strife is growing and the risk of default, not only by Greece but by other euro-zone debtors, remains.
Also, the standing of the European Central Bank has been seriously damaged by the bank's decision to start buying government bonds. This is being taken as a resumption of quantitative easing, even despite the ECB's efforts to sterilize the move.
In the meantime, hopes for the global recovery and a return to 'normal' interest rates have been dented by data suggesting that market optimism may have got ahead of itself.
Minneapolis Fed President Narayana Kocherlakota reminded the market of this when he admitted that all members of the FOMC agree that U.S. rates should remain down near zero.
On a global level, even those economies that have been pulling out of recession well ahead of the rest, such as Australia and New Zealand, are showing signs of slower-than-expected growth.
This is being reflected in last week's decline in crude oil prices to a three-month low and expectations of more losses to come.
Although the dollar will often benefit alongside the yen in times of uncertainty, as investors head for safe havens, the dollar is being compromised this time around by the rising concern over U.S. banks. Apart from the prospect of increased regulation, the U.S. authorities are gradually widening their criminal probe, with the Securities and Exchange Commission now looking at six major banks for evidence that they misled credit rating agencies.
China is also proving a plus for the yen, as its economy shows little sign of slowing down significantly despite repeated attempts at tightening monetary policy.
This is increasing speculation--once again--that the Peoples' Bank of China will finally resort to a yuan revaluation to do the trick.
If so, the yen could find itself in heavy demand, seeing that the last time the Chinese revalued the yuan in 2005, the Japanese currency immediately rose by 2.7% against the dollar.
Apart from all this, there is one other reason to postpone any plans to start selling the yen again: positions.
According to data from J.P. Morgan, Japanese retail investors continue to hold fairly large negative positions in the currency. "We should be cautious on the risk of potential unwinding of yen shorts," said Junya Tanase, a strategist with the bank in Tokyo.
In early European trading hours Monday, the yen was trading roughly flat compared with its levels against the dollar late Friday in New York, with the dollar at Y92.03, according to trading system EBS.
The euro remained under heavy pressure, trading at $1.2295 against the dollar, from $1.24. It had earlier hit a four-year low at $1.2234. Persistent concern about the structure and outlook of the euro zone were behind the move.
Sterling was also under pressure amid concern that new U.K. Chancellor George Osborne might reveal some nasty shocks about the country's finances in his speech to launch the long-awaited Office for Budget Responsibility, which is due later in the European session. The pound traded at $1.4393, having earlier sunk to a 13-month low of $1.4256. It was at around $1.46 late Friday in New York.
- 17 May |
- 0 comments
Post new comment