Yen weakens on central bank interest-rate prospects

April 26, 2011 - 0:0

The yen fell versus all of its major counterparts on speculation the Bank of Japan will signal this week it will maintain monetary stimulus while policy is being tightened elsewhere.

The euro climbed against the yen for a second day before data this week that may show industrial orders growth in the currency bloc accelerated, bolstering the case for the European Central Bank to increase interest rates further. Malaysia’s ringgit strengthened below 3 per dollar for the first time in more than 13 years on speculation the Asian central bank will raise interest rates next month to help damp inflation. The U.S. currency weakened versus most of its major peers.
“Japan and the U.S. are the countries that can’t steer toward monetary tightening, so the yen and dollar will be weak,” said Daisaku Ueno, president of Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “The yen will continue to depreciate as long as the global economy is recovering gradually.”
Japan’s currency depreciated 0.4 percent to 119.71 per euro as of 9:23 a.m. in London from 119.24 in New York last week, and weakened to 82.09 per dollar from 81.88. The euro traded at $1.4581 from $1.4561 after touching $1.4649 on April 21, the strongest level since December 2009.
Financial markets in Australia, New Zealand, Hong Kong and London are closed for a public holiday on Monday.
---------------Industrial orders
The Bank of Japan will hold its benchmark interest rate at a range of between zero and 0.1 percent at its April 28 meeting, according to all 13 economists surveyed by Bloomberg. The central bank may cut its forecast for real growth in fiscal 2011 to 0.8 percent from 1.6 percent as a result of a record earthquake on March 11, the Nikkei newspaper reported.
The euro has gained 3.4 percent this year, the second-best performer after Sweden’s krona among the 10 most-widely traded currencies tracked by Bloomberg Correlation-Weighted Currency Indexes.
ECB President Jean-Claude Trichet said last week that price stability remains the central bank’s primary mandate and that maintaining credibility on inflation is critical. ECB executive board member Jose Manuel Gonzalez-Paramo speaks tomorrow followed by central bank council member Athanasios Orphanides on April 27.
The ECB, which aims to keep inflation below 2 percent, this month raised interest rates by a quarter-percentage point to 1.25 percent. It left the door open for more rate increases even as a sovereign debt crisis tempers growth in peripheral countries such as Greece, Portugal and Ireland.
------------Swedish krona
“Currencies of nations which are hiking rates are attractive,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust & Banking Co., a unit of Japan’s largest brokerage. “There’s a high possibility for further euro appreciation.”
The Swedish krona climbed to its strongest level against the dollar in more than 2 1/2 years on Monday after the Riksbank increased interest rates last week. The krona rose to 6.0701, a level not seen since August 2008, before trading at 6.0907.
Industrial orders in the euro area rose 1.5 percent in February from the previous month, when they increased a revised 1.2 percent, according to economists surveyed by Bloomberg before the April 27 report.
The dollar pared earlier losses against the euro. The European currency’s 14-day stochastic oscillator against the greenback rose to 82.3 on April 22, above the 80 threshold that suggests to some traders an asset’s price has risen too quickly and is poised to reverse course.
--------------Dollar ‘oversold’
“The dollar is likely oversold, given its recent slump,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is probably contributing to some buying back of the greenback amid holiday-thinned markets.”
Futures traders cut their bets that the euro will rise versus the dollar, according to data from the Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a gain in the euro compared with those on a drop -- so-called net longs -- was 62,195 on April 19, compared with 64,985 a week earlier.
The ringgit led gains among Asian currencies. A government report showed this month inflation in Southeast Asia’s third- largest economy accelerated at the fastest pace in 23 months.
“We could expect the ringgit to strengthen to counter inflation, given that there’s still a small probability of a rate increase in May,” said Saktiandi Supaat, head of foreign- exchange research in Singapore at Malayan Banking Bhd. “It’s also helped by the dollar weakness.”
Malaysia’s consumer prices rose 3 percent in March from a year earlier, the most since April 2009, the statistics department said on April 20. Bank Negara has kept its overnight rate at 2.75 percent since July, after raising it three times earlier in 2010.
The ringgit touched 2.9914 against the dollar, the strongest level since October 1997, before trading at 2.9925 from 3.0045 last week.
(Source: Bloomberg)