The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.95 level and was supported around the ¥92.40 level. Finance minister Kan noted I think inflation targeting is an attractive policy. We could have a goal of 1 per cent or something a little higher, like 2 per cent, and work with the BoJ until that goal is met. Most dealers believe the government is likely to keep pressuring Bank of Japan to ease policy further. One reason the yen was pushed lower is because the London three-month interbank offered rate (Libor) for yen loans declined to 0.23688 yesterday, its lowest level since May 2006. At the same time, the spread between yen rates and dollar rates climbed to its highest level in eight months, rendering the U.S. dollar more attractive investment. Further yen weakness could in fact be prompted by a renewal of the carry trade. BoJ Governor Shirakawa said the central bank is not excluding any policy options at this time and reiterated weak demand is causing price declines. Data released in Japan overnight saw March machine tool orders climb 262.2% y/y while March convenience store sales were off 4.9% y/y. Trade balance data will be released tomorrow. The Nikkei 225 stock index lost 0.07% to close at ¥10,900.68. U.S. dollar offers are cited around the ¥96.85 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥125.60 level and was supported around the ¥124.45 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥143.25 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.60 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8254 in the over-the-counter market, down from CNY 6.8275. China's currency regulator today noted that China's capital account surplus expanded to US$ 144.8 billion in 2009, up from US$ 19 billion in 2008. The perception of higher interest rates in China is likely to fuel more China-bound investment capital. Many traders believe China will revalue its yuan's trading band imminently, possibly by widening its trading band by up to 3%.
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