The greenback moved sideways against the Japanese yen on intervention fears as Bank of Japan Governor Masaaki Shirakawa said the Japanese yen’s gain hurts Japanese exporters and the economy in the short term. Naoyuki Shinohara, vice finance minister for international affairs in Japan, said he did not rule out action to curb the yen. The Bank of Japan voted in a unanimous to keep the target lending rate at 0.1%. The Bank of Japan intervened the market by selling 20.4 trillion yen ($229 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004.
Short-term loan markets showed more signs of strain on Thursday. Interbank borrowing costs on the dollar rose broadly for a second straight day in London with the benchmark three-month London interbank offered rate widened slightly to 96 basis points, its highest in more than a week. Dollar Libor rates from overnight to one-year terms were all fixed higher on Thursday with the one-year rate gaining the most, up 8 basis points at 1.92%. Outside of the banking sector, the U.S. commercial paper market contracted for a second straight week, led by a hefty drop in the asset-backed sector.
The single currency traded inside 1.2908-1.3083 in a volatile manner on Thursday in part due to active cross trading in euro. Euro rose against the sterling and the Swiss franc to 0.9468 and to 1.5108 before retreating. The British pound fell sharply fm 1.4025 to 1.3690 before rebounding as U.S. equities pared some of its losses. Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, said the new U.S. administration believes China is ‘manipulating’ its currency.
Friday will see the release of Japan’s all industry index, German manufacturing and services PMI, U.K. GDP and retail sales. U.K. gross domestic product is expected to contract by 1.2% in the fourth quarter, the most since 1990, from the previous three months and U.K. retail sales will probably decrease by 0.6% in December versus the increase of 0.3% in November.