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Thu, Jan 27, 2005 - Page 12 News List

Yen jumps after Beijing says it will discuss yuan peg

REBOUND Japan's currency recovered from a two-week low after China said there would be talk on the yuan at next week's G7 meeting

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The yen rebounded in London from near a two-week low against the dollar yesterday and rose versus the euro after a Chinese official said Finance Minister Jin Renqing (金人慶 ) will discuss the yuan's exchange rate at next week's G7 meeting.

Jin will have a "deep dialogue" on China's currency, which has been pegged to the dollar for a decade, said Zhu Guangyao, head of the ministry's international department.

The yen had its biggest drop in three weeks on Tuesday after a Chinese central bank policy maker said in an interview with Reuters that the time isn't right to alter the peg.

"The news today revives the scenario that the G-7 will exert pressure on Asia, in contrast with yesterday's [Tuesday's] report," said Junya Tanase, a currency strategist in Tokyo at JPMorgan Chase & Co. "The yen's getting bought back as a result."

The yen rose to ?103.56 per dollar as of 8:10am in London, according to electronic currency trading system EBS, from ?104.05 late yesterday in New York, when it traded as high as ?104.34. It also rose to ?134.37 per euro, from ?135.

JPMorgan forecasts the yen will strengthen to ?94 to the dollar by the end of June.

"While I wouldn't read too much into any of these comments, there is clearly a heightened sensitivity about the yuan at the moment and people are latching onto anything," said Simon Derrick, head of currency strategy in London at Bank of New York.

After Tuesday's drop "I'm not surprised to see the yen up," he said.

Bank of New York predicts the yen will appreciate to ?98 per dollar by the end of March and trade at ?90 by Dec. 31.

The G7 countries have urged China to revalue the yuan, saying the peg gives its companies an unfair trade advantage.

Speculation China will let its currency strengthen helped send the yen to a five-year high of ?101.69 per dollar on Jan. 17, on expectations a revaluation would ease pressure on Japan to protect its exporters by selling yen.

"Minister Jin will hold a deep dialogue" with Gordon Brown," UK Chancellor of the Exchequer, who is hosting the meeting, Zhu said.

"The issues will include the yuan exchange rate," he told a forum organized by the Economist in Beijing. The comments were earlier reported by Reuters.

"People look at the story and think it could mean there will be some revaluation," said Sabrina Jacobs, a currency strategist in Singapore at Dresdner Kleinwort Wasserstein. "I don't think there will be, but it's certainly sent the yen higher."

The yen may rise to ?103 per dollar and ?133 per euro in the next few days, Jacobs said.

The dollar's decline may be limited on expectations a government report this week will show the fastest growth in the US economy since 1999.

The US will grow "above the long-run potential" this year, Federal Reserve Bank of Kansas City president Thomas Hoenig said in a speech on Tuesday.

US GDP in the world's largest economy grew an annualized 3.5 percent last quarter, bringing last year's growth to 4.4 percent, based on the median forecast of 77 economists surveyed by Bloomberg News before a report Jan. 28. A report on Tuesday showed an index of consumer sentiment rose to a six-month high.

"The US numbers are getting better and the statements are pretty positive," said Jake Moore, a currency strategist in Tokyo at Barclays Capital Inc. "The dollar should benefit."

The dollar may rise to ?105 in the next few days, he said.

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