Fri, Jul 22, 2016 - Page 10 News List

Yen touches six-week low, eyes on ECB

Reuters, LONDON

The US dollar yesterday touched a six-week high against the yen, bolstered by reports of a doubling of initial expectations for economic stimulus from Tokyo and bets that the Bank of Japan (BOJ) would ease policy next week.

After sinking briefly below US$1.10 on Wednesday, the euro recovered to trade at about 0.25 percent higher on the run-in to a European Central Bank (ECB) meeting that currency markets seem confident would deliver no great new easing to weaken the currency.

In broader terms, the US dollar is trading at about its strongest since March against a basket of currencies, driven in the past week by a reheating of expectations for another rise in US interest rates before the end of the year.

“The market expects something in easing from the BOJ next week, so that is weighing on the yen,” said Dominic Bunning, a currency strategist with HSBC Holdings PLC in London.

US Federal Reserve “pricing has also shifted quite a bit, from a 10 percent chance for a rise this year after the Brexit vote to nearly 50 percent. So in terms of dollar-yen you have got that sort of double whammy for the yen,” he said.

A broad recovery in risk appetite and speculation about merger and acquisition-related flows have also weighed on the yen since investors fled to the traditional security of Japan after Britain’s vote last month to leave the EU.

The Nikkei ended 0.8 percent higher at 16,810.22.

Gains in Japanese stocks, which were supported by media reports that the Japanese government was planning to compile a stimulus package of at least ¥20 trillion (US$187.25 billion), dragged on the yen.

The US dollar rose as high as ¥107.49, its strongest level since June 7, and last changed hands at ¥106.82, up 0.1 percent on the day.

The greenback’s advance took a pause ahead of chart resistance at about ¥107.72, the top of the cloud on the daily Ichimoku chart, a popular technical analysis tool.

“Our own view is that the market might still be too optimistic in expectations for bolder measures from [the] BOJ,” said Lee Hardman, a currency economist at Bank of Tokyo-Mitsubishi UFJ in London.

“If you look at the breakdown of the fiscal package that has been speculated overnight, the headline figure is obviously very large, but the actual amount of fresh fiscal stimulus through government spending is more modest,” he said.

The euro rose 0.1 percent against the Japanese currency to ¥117.90. Against the US dollar, the euro gained 0.2 percent to US$1.1030.

The biggest decliner among a relatively subdued set of moves for major currencies was the New Zealand dollar, down 0.6 percent to US$0.6986, having touched a six-week low of US$0.6952.

The Reserve Bank of New Zealand, as expected by many in markets, used an unusual between-meeting update on policy to say further cuts in interest rates are likely. That cemented expectations for easing at its Aug. 11 meeting.

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