During early deals on Wednesday, the Japanese yen climbed to new multi-day highs against its major counterparts as investors sought safety in the Japanese unit on speculation the Federal Reserve's stress tests may show U.S. banks will need more capital to withstand a deeper slump.
Worries about capital shortfalls in US banks which undergone stress tests to check their financial soundness have sent US stocks lower Tuesday and dampened market sentiment in Asia today.
US banking regulators and the Federal Reserve are set to release results of the stress tests on Thursday.
The U.S. government is expected to direct about ten of the nineteen banks that have undergone stress tests to bolster their capital. The report noted that move is expected to help quell fears about the solvency of the financial sector.
The nineteen major financial institutions that were scrutinized through the government's stress tests were intimated with preliminary results last week. Regulators are now negotiating these results and any capital recovery plans with the banking companies. The complete results were originally scheduled to be published on May 4, but have been delayed, partly over a disagreement by banks over the results of the tests. The results are now slated to be released tomorrow.
The stress tests began in late February as a way to determine whether or not the banks had sufficient capital to navigate the difficult financial environment. According to a Fed study released April 24, the banks in the test hold two-thirds of the assets and more than half of the loans in the U.S. banking system.
Japanese markets will remain closed until Thursday, due to the Golden Week holidays.
The Japanese yen that closed Tuesday's North American session at 98.84 against the US dollar strengthened to a 6-day high of 97.96 during early deals on Wednesday. If the yen gains further, it may test resistance around the 97.4 level.
Yesterday, Fed Chairman Bernanke testified before the Joint Economic Committee of Congress, noting that recent data has suggested that the pace of contraction in the U.S. economy may be slowing.
While the Fed chairman also said that recent data shows some signs that the beleaguered housing market may be bottoming, he noted that the available indicators of business investment remain extremely weak.
Looking forward, Bernanke said economic activity is expected to bottom out then turn up later this year. Nonetheless, he noted that the rate of growth of real economic activity is likely to remain below its longer-run potential for a while.
The yen that declined to a 2-week low of 99.59 against the US dollar on May 1, has gained around 2% thus far.
In early trading on Wednesday, the yen soared to 129.89 against the European currency. This set the highest point for the yen since April 30. On the upside, 126.2 is seen as the next target level for the Japanese currency. The euro-yen pair was worth 131.75 at Tuesday's close.
The euro remained under selling pressure on expectation the European Central Bank will slash interest rates tomorrow from the current 1.25% to counter the region's recession. This would be the lowest level since the bank took charge of monetary policy in 1999. The ECB has also said it will announce unconventional policy measures to increase euro zone liquidity.
Worries about the euro zone's economic outlook also hurt the euro, after data released yesterday showed the euro zone producer prices in March recorded the biggest annual fall in 22 years, adding more pressure on the central bank to cut its key rate tomorrow.
According to a report released by European Union statistics agency Eurostat, industrial producer prices slipped 3.1% annually in March, larger than the revised 1.7% decrease in the prior month. The annual decline in March was larger than the expected 2.9% decrease and the biggest since February 1987. Month-on-month, producer prices declined 0.7% in March compared with a 0.4% drop in February. Economists were expecting a monthly 0.6% fall.
The yen that jumped to near a 7-week high of 124.41 against the euro on April 28 reversed direction after the European Central Bank policymaker Ewald Nowotny said the central bank would take all available measures to stabilize the inflationary expectations in the euro area and keep them anchored in the positive terrain.
The Japanese currency has lost around 6% against the euro since reaching a 7-week high before bouncing back on May 5.
Against the British pound, the Japanese currency climbed to a 5-day high of 147.02 during Wednesday's early deals. The next upside target level for the yen is seen at 145.1.The pound-yen pair closed Tuesday's New York deals at 149.15.
The Japanese yen lost ground after hitting a new multi-week high of 139.07 against the pound on April 28. The yen depreciated around 7% versus the pound to hit a new multi-day low of 149.91 yesterday.
UK's sterling showed weakness as the shop price inflation in Great Britain contracted in April compared to March, while inflation in food prices eased for the first time this year. The British Retail Consortium reported today that its shop price index declined 0.5 percent in April vs. March. The index increased 0.4 percent in March.
The BRC said total shop prices for the year to April increased 1.4 percent, following an on-year increase of 2.0 percent in March.
Meanwhile, an index measuring consumer confidence in the United Kingdom rose eight points in April, marketing firm Nationwide said today, coming in with a score of 50. The Expectations Index increased by 13 points to 70 for almost a two-year high. The Present Situation Index, which had been falling since last June, recorded a one-point increase to 21.
Eighty percent of consumers felt that the current economic situation was bad, versus last month when 83 percent felt this way. Over two thirds (68 percent) of respondents believe there are not many jobs available at the moment, compared to 66 percent in March.
During early deals on Wednesday, the yen rose to a 6-day high of 86.16 against the Swiss franc. If the yen advances further, the next likely target is seen at 85.6. At yesterday's close, the franc-yen pair was quoted at 87.32.
The Japanese currency has declined 6% against the franc before reversing direction on May 5.
The Japanese yen also jumped to a 5-day high against the currencies of Australia, New Zealand and Canada.
During early deals on Wednesday, the yen climbed to a 5-day high of 56.50 against the NZ dollar and 72.01 against the Australian dollar. If the yen gains further, it may likely target 55.7 against the kiwi and 70.3 against the aussie. The kiwi-yen and the aussie-yen pairs were worth 57.36 and 73.1, respectively at Tuesday's close.
The Australian dollar fell despite a better than expected Australian trade surplus and retail sales figures.
Retail sales in Australia were up a seasonally adjusted 2.2 percent in March compared to the previous month, the Australian Bureau of Statistics said today, standing at A$19.30 billion. That was well above analyst expectations for a 0.5 percent gain following the 2 percent decline in February.
Australia posted a merchandise trade balance of A$2.498 billion in March. The Australian Bureau of Statistics reported today that the trade surplus was higher than the A$2.11 billion balance reported for February, and was also above the A$1.7 billion balance projected by most economic analysts.
Against its Canadian counterpart, the Japanese currency spiked to a 5-day high of 83.01 during today's early deals. On the upside, the yen may likely target the 80.9 level against the yen. At yesterday's North American session close, the pair was quoted at 84.14.
The Euro-zone retail sales for March and the services PMI report from major European economies for April are expected in the upcoming European session.
From U.S., the ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 am ET. The report is usually released two days prior to the Labor Department's employment report. Economists estimate a job loss of 643,000 in the private sector.
San Francisco Federal Reserve Bank President Janet Yellen is scheduled to speak via satellite at an Australian Business Economists meeting in Sydney at 5:30 pm ET.
Also, the Canadian March building permits and April Ivey PMI reports are scheduled to be released.
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