Monday in Asia, the yen plummeted against its major counterparts as the Asian stock markets rose today on optimism about emerging strength in the U.S. economy and easing fears about swine flu, which increased investors risk appetite.
The yen slumped to new multi-month lows against the Aussie and the loonie and tumbled to new multi-week lows against the euro, the pound, the franc and the kiwi.
With Tokyo markets shut until Thursday for the Golden Week holiday, other Asian stocks rallied as the regional leaders pledged yesterday to set up a $120 billion emergency fund.
The Association of Southeast Asian Nations, together with Japan, China and South Korea, agreed to set up a $120 billion foreign-currency reserve pool by the end of the year to help revive investor confidence. The pledge was agreed upon at a weekend meeting in Bali, Indonesia.
The ministers also unveiled a $500 million credit-guarantee and investment mechanism, which will be used to enhance the credit ratings of companies that want to issue debt.
Japan also announced plans to launch a program to provide around JPY6 trillion in emergency funds for Asian countries to support its neighbors in an economic downturn. Separately, the Japan Bank for International Cooperation will guarantee the so-called Samurai bonds--the yen-denominated bonds sold in Japan by foreign governments and companies--issued by Asian nations worth up to JPY500 billion.
A joint statement by the region's finance ministers said Sunday that the current global situation requires more concerted efforts to enhance confidence, maintain financial stability, and prevent further decline in economic growth. The deepening global economic downturn, coupled with heightened risk aversion in financial markets, has adversely impacted trade and investment in the region, it added.
Better economic reports worldwide increased investor confidence that the worst in the global economy may be past, boosting risk appetite.
A report on Friday showed that U.S. consumers felt more upbeat about the economy in April while a key gauge of manufacturing suggested the sector was gradually emerging out of a deep slowdown. Japan reported last week that industrial production rose for the first time in six months and at twice the pace estimated by economists.
The Federal Reserve said last week that the U.S. recession is starting to ease and signs emerged of a rebound in consumer spending and decline in business inventories even though gross domestic product contracted at a worse-than-expected annual rate of 6.1 percent.
All these factors are helping risk appetite. The dollar and yen seem to be coming under some pressure and equities are firming. The dollar and the yen are being used as funding currencies to ride rising trends in other currencies and take positions in commodity currencies as the outlook for the global economy improves.
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 2.5 percent in New Zealand.
Easing Swine flu fears also boosted stock prices. Asia reported no new confirmed cases of swine flu, indicating the virus spread may be slowing, but 350 people remained under quarantine in a downtown Hong Kong hotel as a precaution.
Authorities in Mexico, the epicenter of the disease, indicated that the epidemic was easing, and the World Health Organization decided not to raise its alert, though officials warned people against letting their guard down.
The yen fell to a 20-day low of 132.89 against the euro during Asian deals on Monday. The next downside target level for the Japanese currency is seen at 134.4. At Friday's close, the euro-yen pair was quoted at 131.74.
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.
Adding to euro's uptrend, the European Commission said on April 29 that economic sentiment in the Euro-zone rose for the first time since May 2007. The index climbed to 67.2 in April from a revised reading of 64.7 in March. The index stood above the expected reading of 65.6.
The yen has lost 6% against the euro since reaching a 7-week high.
In Asian trading on Monday, the yen slipped to an 18-day low of 149.17 against the pound. This may be compared to last week's close of 148.12. On the downside, 150 level is seen as the next likely target for the yen.
The pound appreciated 4% against the yen last week as the British economy is showing signs of pulling out of its downward spiral after contracting at the fastest pace since 1979 in the first quarter.
The Bank of England said mortgage approvals rose to a 10-month high in March and an index of U.K. manufacturing activity climbed to its highest level in eight months. Consumer confidence rose to the highest in a year in April and the pace of house-price declines is slowing.
The yen that closed last week's trading at 87.43 against the Swiss franc dropped to 87.96 in Asian deals on Monday. This set the lowest point for the yen since April 14. If the Japanese currency edges down further, it may likely target the 88.7 level.
The Japanese currency has declined 6% against the franc after it reached a 1-1/2 -month high of 82.73 on April 28.
During Asian deals on Monday, the yen weakened to 99.57 against the dollar. The next downside target for the yen is seen around the 100 level.
The yen has declined 2% against the dollar last week and closed Friday's trading at 99.29.
Against the New Zealand dollar, the yen declined to a 17-day low of 57.27 during Asian deals on Monday. On the downside, 59.5 is seen as the next target level for the yen. The kiwi-yen pair closed last week's trading at 56.66.
In Asian deals on Monday, the yen plunged to new multi-month lows of 73.59 against the Aussie and 84.40 against the Canadian dollar. If the yen slides further, it may likely target 75 against the aussie and 87.5 against the loonie. The aussie-yen and the loonie-yen pairs were worth 72.56 and 83.81, respectively at Friday's close.
In economic news from Australia, the average asking price for a house was down 2.2 percent in the first quarter of 2009 compared to the previous three months, the Australian Bureau of Statistics said today. Analysts had forecast a flat reading following the revised 1.2 percent quarterly decline in the fourth quarter of 2008. On an annual basis, house prices dropped 6.7 percent after the revised 3.9 percent decline in the previous quarter.
Meanwhile, the TD Securities/Melbourne Institute inflation gauge was unchanged in April, following a 0.1 per cent fall in March. Over the year to April, inflation was up 2.1 per cent and is now testing the lower end of the Reserve Bank of Australia's 2% to 3% target band.
Looking ahead, the Swiss April SVME PMI, Italian March PPI, Euro-zone sentix investor confidence for May and the manufacturing PMI reports from major European economies are expected in the upcoming session.
Across the Atlantic, the US Pending home sales and the construction spending reports-both for the month of March have been slated for release.
Investors also await the release of the U.S. government's bank stress tests this week while the U.S. monthly employment report will be released on Friday.
The Federal Reserve Chairman Ben Bernanke is heading to Capitol Hill to testify on the economy on Tuesday.
The coming week also contains several key central bank meetings, including those of the Reserve Bank of Australia, Bank of England and the European Central Bank. Analysts expect the ECB to trim interest rates from 1.25%, while the RBA and the BoE are expected to leave rates unchanged at 3% and 0.5%, respectively.
For comments and feedback: contact email@example.com