Yen Falls Out Of Favor. By Gary Stride
In times of global market stress and risk aversion, investors forget Japan's domestic woes and rush to the safety of the yen.
However, when the risk tide turns, or even just ebbs a little, that same market throws caution to the wind, takes a hard look at just why it bought the low yielding yen in the first place, and starts to offload it.
Now may just be that time.
Lets start with risk appetite.
The sharp recovery seen in global equity markets last week and the improvement in market risk sentiment kept dollar/yen well supported into the long U.S. weekend.
The gains seen in euro/yen were even more impressive with the cross recovering some 5% from last Tuesday's fresh 8 1/2 year low of Y108.83.
That move likely pleased Japan's Finance Minister Naoto Kan who had said only a week ago that while currency levels should be set by the markets, excessive yen rises are undesirable.
Central bank speak for we are not happy with a stronger yen.
True, a three cent recovery in euro/dollar helped, as did a sharp recovery in the Australian dollar's fortunes that helped aussie/yen pick itself off a fresh 10-month low and trade back at Y78.00 by Friday for a 10% recovery.
Now lets take at look at domestic issues.
Last Friday's data run quashed any ideas of a home-grown improvement.
Unemployment was higher than expected with joblessness rising 0.1% to 5.1%, household spending unexpectedly dropped by 0.7% year on year in April against an expected 2.5% increase and deflation was more deeply entrenched with core inflation falling 1.5%.
Jane Foley at FOREX.com said the data would likely increase the pressure on the Bank of Japan to further stimulate the economy.
Foley said while aggressive yen shorts are unlikely to be built in view of doubts surrounding debt in Europe, the current more settled conditions may push dollar/yen up to its recent range highs and also encourage aussie/yen and canadian dollar/yen to trade higher.
The currency strategy team at Brown Brothers Harriman also picks up on interest rates and Europe's woes.
The bank says when the European crisis flared, the yen's correlation with equity prices increased while the correlation with interest rate differentials seemed to slacken.
However, as the panic starts to ebb, rate differentials are likely to become a more important driver once again and the bank says it would not be surprised to see dollar/yen up in the Y92.00-92.50 area in coming day's.
BNP Paribas notes that the G20 meeting which takes place in Toronto, Canada between June 26-27th will discuss Europe's fiscal problems and financial regulations, according that is, to Japan's finance minister Kan.
This, says the bank, indicates that the Japanese government does not like the euro trading down near Y110.00.
Both UK and U.S. markets return from a long weekend to find the euro once again under pressure.
Late Friday, rating agency Fitch cut Spain's rating by one notch to AA+ and the European Central Bank's semiannual Financial Stability Review made grim reading saying that euro-zone bank's could face write-downs close to EUR200B by the end of 2011.
However, once again the yen failed to capitalize on the single currency's woes with political uncertainty likely playing a part.
Japan's Prime Minister Yukio Hatoyama is under pressure to resign as his approval ratings slump ahead of next month's upper house elections.
Around 0650GMT, the dollar fetches Y91.20, up slightly from Y91.10 seen in late Toronto trade Monday.
The euro is just a little weaker at $1.2260 from $1.2269 while the pound is unchanged at $1.4518.
However, when the risk tide turns, or even just ebbs a little, that same market throws caution to the wind, takes a hard look at just why it bought the low yielding yen in the first place, and starts to offload it.
Now may just be that time.
Lets start with risk appetite.
The sharp recovery seen in global equity markets last week and the improvement in market risk sentiment kept dollar/yen well supported into the long U.S. weekend.
The gains seen in euro/yen were even more impressive with the cross recovering some 5% from last Tuesday's fresh 8 1/2 year low of Y108.83.
That move likely pleased Japan's Finance Minister Naoto Kan who had said only a week ago that while currency levels should be set by the markets, excessive yen rises are undesirable.
Central bank speak for we are not happy with a stronger yen.
True, a three cent recovery in euro/dollar helped, as did a sharp recovery in the Australian dollar's fortunes that helped aussie/yen pick itself off a fresh 10-month low and trade back at Y78.00 by Friday for a 10% recovery.
Now lets take at look at domestic issues.
Last Friday's data run quashed any ideas of a home-grown improvement.
Unemployment was higher than expected with joblessness rising 0.1% to 5.1%, household spending unexpectedly dropped by 0.7% year on year in April against an expected 2.5% increase and deflation was more deeply entrenched with core inflation falling 1.5%.
Jane Foley at FOREX.com said the data would likely increase the pressure on the Bank of Japan to further stimulate the economy.
Foley said while aggressive yen shorts are unlikely to be built in view of doubts surrounding debt in Europe, the current more settled conditions may push dollar/yen up to its recent range highs and also encourage aussie/yen and canadian dollar/yen to trade higher.
The currency strategy team at Brown Brothers Harriman also picks up on interest rates and Europe's woes.
The bank says when the European crisis flared, the yen's correlation with equity prices increased while the correlation with interest rate differentials seemed to slacken.
However, as the panic starts to ebb, rate differentials are likely to become a more important driver once again and the bank says it would not be surprised to see dollar/yen up in the Y92.00-92.50 area in coming day's.
BNP Paribas notes that the G20 meeting which takes place in Toronto, Canada between June 26-27th will discuss Europe's fiscal problems and financial regulations, according that is, to Japan's finance minister Kan.
This, says the bank, indicates that the Japanese government does not like the euro trading down near Y110.00.
Both UK and U.S. markets return from a long weekend to find the euro once again under pressure.
Late Friday, rating agency Fitch cut Spain's rating by one notch to AA+ and the European Central Bank's semiannual Financial Stability Review made grim reading saying that euro-zone bank's could face write-downs close to EUR200B by the end of 2011.
However, once again the yen failed to capitalize on the single currency's woes with political uncertainty likely playing a part.
Japan's Prime Minister Yukio Hatoyama is under pressure to resign as his approval ratings slump ahead of next month's upper house elections.
Around 0650GMT, the dollar fetches Y91.20, up slightly from Y91.10 seen in late Toronto trade Monday.
The euro is just a little weaker at $1.2260 from $1.2269 while the pound is unchanged at $1.4518.
- 1 June |
- 0 comments
Post new comment