RTTNews - Tuesday during Asian deals, the Japanese yen rose to new multi-day highs against other major currencies on the back of weak equities as investors remained wary about the global economy.
Stocks across the Asia-Pacific region are substantially down, dragging higher yielding currencies lower and bolstering demand for the low-yielding currencies like dollar and yen amid fresh concerns over the state of the global economy. Investors across the globe now appear to be nursing concerns over the tremendous pace at which stock markets rallied over the past few weeks in anticipation of a global economic revival.
The benchmark Nikkei 225 Index, which opened 1.25% down at 9,914, ended the morning session at 9,844, down 196 points or 1.95% from its previous close.
Following a two-day Monetary Policy Meeting, the Bank of Japan today announced that it would encourage the uncollateralized overnight call rate to remain around 0.1%. The decision came in-line with expectations. The committee said in the post-meeting policy statement that economic conditions have stopped worsening.
Tuesday in Asia, the yen continued to creep higher versus the dollar, jumping to an 11-day high of 96.55, compared to 97.82 hit late Monday in New York. If the yen moves up further, it may test resistance around the 95.39 level.
The Japanese Finance Minister Kaoru Yosano had said last weekend that the dollar will remain the world's key reserve currency, despite rising calls among some countries to reduce dependence on it.
The dollar got a boost yesterday from comments by Russian Finance Minister Alexei Kudrin, at the weekend's G8 summit that the dollar's role as the main reserve currency was unlikely to change in the near future. Last week, president Dmitry Medvedev has questioned dollar' status joining the Chinese central bank's Governor Zhou Xiaochuan pressing that world may need another benchmark for settling international debts.
Leaders of the the BRIC nations- namely Brazil, Russia, India and China are expected meet today and will focus on ways to reshape the financial system after the economic crisis. These nations will press the case that their 15 percent share of the world economy and 42 percent of global currency reserves should give them more influence over global financial policies.
Yesterday's economic reports added fears that the worst is not over. According to a report released by the New York Federal Reserve, conditions for New York manufacturers have continued to deteriorate in the month of June, with the index of activity in the sector falling by much more than expected.
The New York Fed said its general business conditions index fell to a negative 9.41 in June from a negative 4.55 in May, with a negative reading indicating a deterioration in conditions. Economists had expected the index to edge down to a negative 5.10.
Another report said that Homebuilder confidence has deteriorated and fell to a reading of 15 in June from a reading of 16 in May. Economists had been expecting the index to edge up to a reading of 17.
Wider U.S trade deficits, continued job losses and weakness in the manufacturing sector suggest that the economy is still shrinking. The Federal policy members are prepared to meet next Tuesday and Wednesday to decide on interest rates. The current rate stands as low as zero. The dollar erased yesterday's gains against the euro and the franc during today's early Asian trading but continued its upward trend against the pound.
Against the currency of Europe, the yen climbed to a 19-day high of 133.22 during today's early trading. The next resistance level for the yen is seen at 131.7. The euro-yen pair closed yesterday's deals at 135.03.
After hitting a new multi-month low of 139.25 against the euro on June 05, the yen has been in an upward channel and gained around 4% thus far. The euro fell broadly yesterday after the European Central Bank said euro zone banks will probably need to write down another $283 billion. Yesterday, the euro fell around 2% against the yen.
During Asian deals on Tuesday, the yen strengthened to a 1-week high of 156.77 against the British pound. If the yen climbs further, it may likely target the 155.6 level. The pound-yen pair closed Monday's deals at 159.64.
The Japanese yen rose around 3% against the Swiss franc since April 12 to hit a 19-day high of 88.46 today. The next upside target level for the yen is seen at 87.14 against the franc.
The Swiss franc got a severe blow yesterday and slumped to a fresh new multi-month low against the pound as Switzerland's Federal Statistical Office reported an unexpected fall in Swiss producer and import prices. The statistics office announced a 0.3% monthly fall in Swiss producer and import prices in May, while economists were expecting a 0.1% rise. Year-on-year, the index recorded a decline of 5%, larger than the expected 4.7% decrease.
Commodity-linked currencies such as the Australian, Canadian and New Zealand dollars fell today as investors became risk averse after a fall in stock and oil prices.
Against its Australian counterpart, the yen advanced to a near 2-week high of 76.22 in Asian deals on Tuesday, compared to Monday's closing value of 77.80. The next upside target level for the Japanese currency is seen at 73.8 against the Aussie.
Minutes of the June 2 Monetary Policy Committee meeting, released today showed that Reserve Bank of Australia policy makers felt this month that there remains room for more policy easing, depending on how the inflationary environment pans out The minutes showed that members did not see a pressing case for any further action at the meeting. The board left the banks cash rate unchanged at 3.0 percent.
The Japanese unit also surged higher versus the New Zealand dollar, rising to a 1-week high of 56.58. On the upside, 55.5 is seen as the next target level for the yen. The pair was worth 57.77 at yesterday's close.
Against the Canadian currency, the Japanese yen hit a 19-day high of 85.04 today. If the yen ticks up further, the next likely resistance is seen around the 83.5 level. At yesterday's North American session close, the loonie-yen pair was worth 86.34.
In the European session, the German and euro-zone ZEW survey results, Swiss industrial production and the CPI reports from Italy, UK, Eurozone are expected.
From U.S, a report on housing starts, is slated to be released at 8:30 am ET. Economists estimate housing starts of 485,000 for May. At the same time, the U.S. Labor Department is scheduled to release a report on the producer price index . Economists expect the headline index to show 0.6% growth and the core index to show 0.1% growth.
The industrial production report of the Federal Reserve is due out at 9:15 am ET. Economists estimate that industrial production declined 1% in May, while capacity utilization is expected to come in at 68.4%.
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