The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.40 level and was supported around the ¥91.80 level. Traders moved out of yen after shares in Japan Airlines declined 45% on speculation that the ailing airline is to file for bankruptcy imminently. Data released in Japan overnight saw the November current account surplus expand 76.9% y/y to ¥1.103 trillion, better-than-expected. Also, December bank lending was off 1.3% m/m and 3.1% y/y. Bank of Japan official Shinobu Nakagawa yesterday reported it is possible that official Japanese interest rates will remain near zero per cent until 2011 on account of the poor economic outlook. Nakagawa also reported the appreciating yen helps to support demand for Japanese government bonds. There is increasing speculation BoJ could increase its bond purchase activity to avert a relapse into another recession. Currently, the central bank purchases around ¥1.8 trillion in Japanese government bonds every month and it may decide to up its purchases to counter intense deflationary pressures. A new announcement could be made as early as H1 2010. An anonymous Ministry of Finance official reported finance minister Kan and U.S. Treasury Secretary Geithner agree on exchange rate policy. New finance minister Kan last week said it is his responsibility to respond to moves in the currency market but added the markets should determine rates. Last Thursday, Kan indicated the yen should be weaker whereas his predecessor, Fujii, green-lighted a stronger yen when he first took office last year. Chief Cabinet Secretary Hirano said the government should not make any comments that could impact the markets. Prime Minister Hatoyama last week said rapid exchange rate moves are not good and unwelcome. Most traders believe the Japanese government will probably try to orchestrate a weaker yen to help counter deflationary pressures and stimulate foreign trade. The Nikkei 225 stock index climbed 1.09% to close at ¥10,798.32 yesterday. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥133.75 level and was supported around the ¥132.95 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥147.65 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥90.20 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8275 in the over-the-counter market, up from CNY 6.8263. The pair was volatile overnight as a Chinese sovereign wealth fund official reported the U.S. dollar reached rock bottom but added the yen still has room to decline. The official quickly noted these were his own opinions and not official public policy. He did, however, suggest that both the U.S. and China are likely to raise rates in H2 2010. Last week, People's Bank of China guided interest rate expectations higher by selling three-month bills at higher rates for the first time in nineteen weeks. This evidences the central bank's attempt to tighten liquidity. PBoC-watchers believe the central bank may lift interest rates for the first time in three years by September. There is increasing speculation that China's economy could slow dramatically this year. People's Bank of China yesterday reported it will support relatively fast economic growth and manage inflation expectations. Additionally, PBoC noted it will target moderate loan growth in 2010.
Join the Discussion