In early deals on Thursday, the yen fell against its major counterparts as a gain in stock prices prompted investors to buy higher-yielding assets with money borrowed from Japan.
In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher rates. The risk is that market moves can erase those profits. Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia and in New Zealand.
Tokyo stocks rose sharply today, cheered by an economic stimulus plan that spurred hopes of revived consumer spending. The Nikkei 225 Stock Average rose 321.05 points, or 3.7%, to 8916.06, closing just off its intraday high. The Topix index of all the Tokyo Stock Exchange First Section issues rose 26.55 points, or 3.3%, to 841.81.
Japan's ruling Liberal Democratic Party (LDP) has approved fresh stimulus spending of JPY 15.4 trillion (USD 154 billion) to resuscitate the world's second-biggest economy from its deepest recession since World War II, reports say.
The figure amounts to 3.1 percent of Japan's gross domestic product and will be the largest ever for a single year, surpassing former Prime Minister Keizo Obuchi's JPY 8.5 trillion stimulus during the Asian financial crisis in 1998. Japan's Prime Minister Taro Aso has unveiled two packages totaling JPY 10 trillion since he took office in September.
The approval came soon after the leaders of the Group of 20 (G-20) pledged last week to spur growth amid signs that the global economy is beginning to recover from its worst financial crisis since the Great Depression.
In economic news, core machine orders in Japan unexpectedly climbed 1.4 percent in February compared to the previous month, the Cabinet Office said. That snapped a four-month string of decline, which was the stat's longest losing streak ever. The February figure came in higher than analyst expectations for a 6.9 percent decline after the 3.2 percent fall in the previous month.
On an annual basis, core machinery orders were down 30.1 percent in February, the data showed. That was slightly better than forecasts for a 36.7 percent drop after the 39.5 percent contraction in the previous month.
The yen fell to 100.28 against the dollar during early deals on Thursday. The next downside target level for the Japanese currency is seen at 100.9. At yesterday's North American session close, the dollar-yen pair was quoted at 99.79.
In early trading on Thursday, the yen weakened against the currencies of Europe and UK. At about 2:50 am ET, the yen touched lows of 133.56 against the euro and 148.05 against the pound, compared to Wednesday's close of 132.45 and 146.80, respectively. If the yen drops further, it may likely target 134 against the euro and 149 against the pound.
Germany's Federal Statistical Office said in a final report that the consumer price index, or CPI, rose 0.5% year-on-year in March, slower than the 1% increase in the previous month. This was the lowest inflation since July 1999. Compared with February, the CPI dropped 0.1% in March, in contrast to a 0.6% rise seen in the preceding month.
The yen, which closed yesterday's trading at 86.96 against the Swiss franc dropped to 87.67 during early deals on Thursday. On the downside, 88.2 is seen as the next target level for the Japanese unit.
Switzerland's seasonally adjusted unemployment rate increased to 3.3% in March from 3.1% recorded in February, the State Secretariat for Economic Affairs, or SECO, said. The jobless rate matched economists' expectations. On an unadjusted basis, the rate of unemployment in March remained at the level seen in February, 3.4%, while the consensus forecast was for an increase to 3.5%.
Looking ahead, the British March PPI and the trade balance report for February are due at 4:30 am ET.
At 6:00 am ET, the German industrial production report for February has been slated for release.
The Bank of England is scheduled to announce its interest rate decision at 7:00 am ET. Analysts expect the central bank to hold its key interest rate at a record low of 0.5%. As the interest rate is already near zero, the central bank is left with only non-conventional measures to raise liquidity and support economy.
Economists expect the central bank to confirm its quantitative easing measures today and express commitment towards implementing its GBP 75 billion asset purchase programme. BoE governor, Mervyn King's comment, two weeks ago, was construed as suggesting that the central bank may not fully utilize the GBP 75 billion for asset purchase.
Turning to the US, the trade balance for February, import and export price index for March and the weekly jobless claims reports have been slated for release in the New York session.
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