The Yen Will Be Back On Top. By Nicholas Hastings
The yen's recent rally is about to get a new lease of life.
As the outlook for the global recovery turns more uncertain and as international investors become more risk-averse, safe-haven currencies, such as the yen, are once again to the fore.
See how the dollar has started to fall against the yen again:
Click Image to Enlarge
Instead of the Japanese currency suffering because of Japan's own uncertain recovery and the country's massive budget deficit, the yen will extend the gains that have already brought the dollar down from nearly Y95 earlier this year to under Y90 now.
The more bearish outlook for the global economy has emerged over the last week or so as economic data has often disappointed expectations.
In the U.S., last Friday's downward revision to the country's first-quarter GDP growth is expected to be followed by very soft employment numbers this Friday, as temporary consensus workers drop out of the picture.
On a broader level, last weekend's agreement by G20 leaders to halve their deficits by 2013 has contributed to the view that the recovery will prove even more slow and more painful than originally anticipated.
Hopes that China might have allowed the yuan to rise, now that its fixed peg to the dollar has been released, have also been dashed. A stronger yuan might have made exports from other major economies more competitive.
However, Beijing has so far succeeded in keeping the yuan well capped around recent levels.
In the meantime, worries about a European debt crisis aren't going away.
Money market conditions remain tight, European banking sector concerns are still high and a major refinancing operation by the European Central Bank this week will very much be the center of market attention.
Of equal importance to global sentiment is the political fallout, especially if German Chancellor Angela Merkel fails to get her candidate for a new president through Wednesday's Federal Assembly.
"If it's a defeat, it may spell the end for the government," warned Steve Barrow, senior currency strategist with Standard Bank.
"Electorate discontent and political change are likely to feed the deep scepticism that exists in the market," Barrow added.
As we have already seen, the yen has continued to rise regardless of the bad news from Japan.
Disappointing retail sales data Monday and Japan's exemption from the G20 fiscal cutting accord because the size of its deficits are so massive, failed to put much of a dent in the yen's advance.
More spectacular yen gains could well be made elsewhere, with strategists at UBS recommending going short of AUD/JPY in case risk aversion "flares up again," intensifying the flows from high-yielders into safe havens.
Early Tuesday in Europe, the yen was once again being bought as concerns about U.S. growth, a fall in U.S. Treasury yields, soft data out of Japan and a sharp downward revision to China's leading indicator by the Conference Board sent equities reeling.
The Nikkei lost 1.4% and the Shanghai Composite is down as much as 4.0% so far.
Concern over the ECB's refinancing operations on Thursday as well as worries about Greek plans to return to funding markets next month were helping to depress the euro.
The euro was down at $1.2233 by 0645 GMT from $1.2276 late Monday in New York, according to EBS. It was also down at Y108.70 from Y109.70 while the dollar fell to Y88.82 from Y89.41.
As the outlook for the global recovery turns more uncertain and as international investors become more risk-averse, safe-haven currencies, such as the yen, are once again to the fore.
See how the dollar has started to fall against the yen again:
Click Image to Enlarge
Instead of the Japanese currency suffering because of Japan's own uncertain recovery and the country's massive budget deficit, the yen will extend the gains that have already brought the dollar down from nearly Y95 earlier this year to under Y90 now.
The more bearish outlook for the global economy has emerged over the last week or so as economic data has often disappointed expectations.
In the U.S., last Friday's downward revision to the country's first-quarter GDP growth is expected to be followed by very soft employment numbers this Friday, as temporary consensus workers drop out of the picture.
On a broader level, last weekend's agreement by G20 leaders to halve their deficits by 2013 has contributed to the view that the recovery will prove even more slow and more painful than originally anticipated.
Hopes that China might have allowed the yuan to rise, now that its fixed peg to the dollar has been released, have also been dashed. A stronger yuan might have made exports from other major economies more competitive.
However, Beijing has so far succeeded in keeping the yuan well capped around recent levels.
In the meantime, worries about a European debt crisis aren't going away.
Money market conditions remain tight, European banking sector concerns are still high and a major refinancing operation by the European Central Bank this week will very much be the center of market attention.
Of equal importance to global sentiment is the political fallout, especially if German Chancellor Angela Merkel fails to get her candidate for a new president through Wednesday's Federal Assembly.
"If it's a defeat, it may spell the end for the government," warned Steve Barrow, senior currency strategist with Standard Bank.
"Electorate discontent and political change are likely to feed the deep scepticism that exists in the market," Barrow added.
As we have already seen, the yen has continued to rise regardless of the bad news from Japan.
Disappointing retail sales data Monday and Japan's exemption from the G20 fiscal cutting accord because the size of its deficits are so massive, failed to put much of a dent in the yen's advance.
More spectacular yen gains could well be made elsewhere, with strategists at UBS recommending going short of AUD/JPY in case risk aversion "flares up again," intensifying the flows from high-yielders into safe havens.
Early Tuesday in Europe, the yen was once again being bought as concerns about U.S. growth, a fall in U.S. Treasury yields, soft data out of Japan and a sharp downward revision to China's leading indicator by the Conference Board sent equities reeling.
The Nikkei lost 1.4% and the Shanghai Composite is down as much as 4.0% so far.
Concern over the ECB's refinancing operations on Thursday as well as worries about Greek plans to return to funding markets next month were helping to depress the euro.
The euro was down at $1.2233 by 0645 GMT from $1.2276 late Monday in New York, according to EBS. It was also down at Y108.70 from Y109.70 while the dollar fell to Y88.82 from Y89.41.
- 29 June |
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