The yen rose for a fifth week in six against the dollar as investors poured money into Japanese stocks, prompting the government to sell the currency to slow a rally that threatens export growth. Traders expect Japan to keep selling yen next week.
Demand for yen surged this week as signs the world's second-biggest economy is pulling out of its worst post-war recession fueled gains in the Nikkei 225 stock average for the sixth week in eight. That increase in demand more than offset the yen sales by the government, which has said it's concerned a strengthening yen may stall the recovery.
Japan was "less than successful" in its attempt to drive down the yen, said Ku Shin, who manages global stocks at Banc One Currency Advisors Inc in Columbus, Ohio, which invests US$132 billion.
"I expect the Bank of Japan will continue intervening."
Japan's currency gained 1 percent against the dollar this week to ?124.65 per dollar. It had risen as much as 2 percent to a five-month high before the Japan began selling yen. Traders estimate the Bank of Japan sold about US$4 billion on Wednesday and yesterday. The yen also gained against the euro this week, strengthening to ?114.92 per euro from ?115.26 last week.
The Japanese government does "not want the yen to appreciate too far too fast" and threaten growth, said Alexandra Bechtel, a currency strategist at Commerzbank in Frankfurt, Germany's fourth-largest bank. The Bank of Japan "has the highest foreign exchange reserves in the world, so there's no point fighting" them by buying yen, she said.
The dollar erased gains today against the euro after the Commerce Department revised lower the rate of first-quarter growth in the world's largest economy, fueling concern a recovery is losing pace and dimming the lure of US assets. It traded at US$0.9223 per euro, compared with US$0.9211.
"The bias for a weaker dollar is confirmed by the data, which is not good equity market news," said David Durrant, a currency strategist at Bank Julius Baer, who said the euro may rally to US$0.9230 Friday. "Looking forward from this, you'd be hard pressed" to bet on a stronger dollar, he said.
The Standard & Poor's 500 Index fell 0.8 percent, crimping demand for dollars, after the government said the economy expanded at an annualized 5.6 percent rate in the January-March period, less than the 5.8 percent rate initially estimated.
The S&P has fallen 5.1 percent and the NASDAQ Composite Index 9.7 percent this quarter, helping push the dollar down 5 percent against a basket of the euro, yen, Swiss franc, British pound, Swedish krona and Canadian dollar.
By contrast, Japan's currency rose 6.2 percent against the dollar this quarter as the Nikkei 225 stock index gained 8.6 percent -- or 15.6 percent in dollar terms -- as foreign investors piled in on signs the world's No. 2 economy is returning to growth.
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