Market Review – 15/09/2010 22:48 GMTDollar rallies from a fresh fifteen-year low against yen after BOJ’s intervention
The greenback surged against the Japanese yen on Wednesday as the Bank of Japan intervened in the currency market for the first time since 2004 to weaken the yen’s strength and the Japanese currency fell broadly on Wednesday.
The greenback initially fell to a fresh 15-year low of 82.87 against the Japanese yen but rocketed from there in Asia due to BOJ’s intervention in the currency market, which was the first time since 2004, and the pair rallied to 85.14 in Asian mid-day. The greenback extended its rally in Europe and NY as the Bank of Japan was seen to continue intervening the currency market and usd/jpy eventually climbed to an intra-day high of 85.78 in NY morning.
Earlier in Asia, Japanese Finance Minister Noda said Japan could not overlook current yen rise and current move in the forex market could hurt Japan’s economy and financial stability. They asked BOJ to intervene and communicated with authorities overseas. He added that Japanese economy severe amid deflation. BOJ Governor Shirakawa also said ‘hope intervention will stabilise currency market.’
Reuters reported that a senior MOF official said ‘Japan’s intervention in the forex market is not finished.’ He added ‘intervention isn’t finished after one move; if currency rates change after intervention, there are people who want to sell or buy, so it is a continuous act to respond to these developments.’ The Bank of Japan was said to have spent $20 billion or more to weaken the Japanese yen on Wednesday, which explained why dollar rose more than 3% against yen.
Bank of Japan policy board member Tadao Noda said BOJ might leave currency intervention unsterilised but would not directly link policy to forex intervention and did not think forex intervention would directly lead to increase in BOJ balance sheet.
In other news, former chairman of the Federal Reserve Alan Greenspan said the taxes in U.S. had to rise while fiscal stimulus needed to be wound down in order to reduce the U.S. budget deficit and allow private investment to expand. Greenspan said that the chances that the U.S. economy would slide back into recession were receding but warned that ‘all bets are off’ is house prices started to fall further due to high levels of unsold inventory.
Eur/jpy, aud/jpy and gbp/jpy rallied on Wednesday due to BOJ’s intervention. Eur/jpy, aud/jpy and gbp/jpy surged from 107.74 to 111.63, 77.94 to 80.64 and 128.58 to 134.06 respectively.
The single currency fell in Asia on dollar’s broad-based rally caused by BOJ’s intervention following Tuesday’s rally to 1.3034 and dropped to 1.2955 in Asian morning. Later, although euro fell again to 1.2959 after the release of eurozone inflation data, which came in at 0.2% m/m and 1.6% y/y versus the previous readings of -0.3% m/m and 1.7% y/y in July, the single currency rebounded and rose to 1.3037 in NY before stabilising.
The British pound fell sharply in Asia on dollar’s board-based rally due to BOJ’s intervention and tumbled to an intra-day low of 1.5449 in European morning. Later, despite cable’s brief retreat after the release of worse-than-expected U.K. jobless claimant count, the pound staged a strong rebound and climbed to an intra-day high of 1.5652 in NY on active cross buying in sterling versus euro (eur/gbp tumbled from 0.8400 to 0.8313) before trading narrowly.
U.K. jobless claimant count increased by 2,300 (versus the forecast of a decrease of 3,000) while U.K. ILO unemployment came in at 7.8% as widely expected.
In other news, Bank of England Governor Mervyn King said British banks would still have some work to do to strengthen their balance sheets. He said it was essential for Britain to deal with its record budget deficit but said there was a debate to be had about how best to cut borrowing. Bank of England policy maker David Miles said in a regional newspaper that British inflation was uncomfortably high at the moment.
RBNZ left the rate unchanged at 3.00% as expected but the central bank said that the economic outlook had weakened, further increases to the benchmark would be “more moderate” than previously projected. Nzd/usd fell to as low as 0.7255 after the rate decision.
Economic data to be released on Thursday include:
Japan Tertiary industry index, Swiss Industrial prod’n, SNB rate decision, EU Trade balance (euro), U.K. Retail sales, BOE’s Inflation Survey, U.K. CBI industrial trend, U.S. Current account (usd), Jobless claims, PPI, PPI core, Foreign treasury buys, Net LT TIC flows.
