Thursday during early deals, the yen plummeted to a 5-month low against the dollar and a 4-month low against the pound as a surge in equities gave traders more confidence to buy higher-yielding assets with money borrowed from Japan.
The stock market in Japan gained more than 4% today tracking the U.S. markets, where all the indices advanced for the second day in succession on unexpected positive economic data. A smaller-than-expected decline in construction spending for February, an increase in the index of pending home sales for February and a higher-than-expected manufacturing sector index of the ISM for March, more than offset the bigger-than-expected decline in non-farm private employment for March.
In Tokyo, the benchmark Nikkei 225 Index gained 367.87 points, or 4.4%, to 8,720, and the broader Topix index of all First Section Issues advanced 32.87 points, or 4.14% to 827.
On the economic front, the Bank of Japan said that the monetary base in Japan was up 6.9% year-over-year in March to 94.46 trillion yen. That's up from 93.65 trillion yen in February, which saw a 6.4% annual increase. Seasonally adjusted, the monetary base was up 5.6% month-over-month at 94.3 trillion yen. Through the first three months of 2009, the monetary base was up an annual 5.7% and a seasonally adjusted 17.2% compared to the previous quarter.
In early deals on Thursday, the yen fell to its lowest level in almost 5-months against the dollar, hitting 99.83. On the downside, 100.6 is seen as the next target level for the Japanese currency. The dollar-yen pair was worth 98.51 at yesterday's close.
The yen that closed yesterday's trading at 142.65 against the pound weakened to a 4-month low of 146.60 during early deals on Thursday. If the yen falls further, it may likely target the 150 level.
The pound made strong gains as the U.K. house prices posted a surprise increase in March for the first time since October 2007.
A monthly report from the Nationwide Building Society showed that U.K. house prices rose 0.9% on a monthly basis in March, reversing the 1.9% fall in February. The data surprised economists who had forecast a 1.5% decrease for March.
During early deals on Thursday, the yen declined to a 6-day low of 133.49 against the euro and 87.54 against the franc. The next downside target level for the yen is seen at 133.9 against the euro and 87.78 against the franc. The euro-yen and the franc-yen pairs were worth 130.45 and 85.96, respectively at Wednesday's close.
The French statistical office INSEE said the producer price index, or PPI, declined 0.6% month-on-month in February following a 2% fall in January. Producer prices dropped quicker than the expected fall of 0.4%. On an annual basis, the PPI fell 4.5%, sharper than a 2.7% decline recorded in January and a 3.4% drop economists forecast.
Financial markets now focus on the European Central Bank, which is scheduled to announce its interest rate decision at 7:45 am ET. The ECB is widely expected to trim rates by 50bps to a record low of 1%.
Amid expectations that the ECB will slash rates, the market is focusing on whether the central bank will open the door for quantitative easing as its counterparts in the United States, Britain and Japan have already done.
For the first time, world leaders would pledge to regulate major hedge funds and establish a new oversight board to monitor the global financial system, reports said citing a draft of the G20 communique. The leaders would vow to cooperate over economic policies to restore global growth and refrain from competitive devaluation of their currencies, reports added.
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