Wednesday, September 15, 2010

GLOBAL MARKETS-Yen drops, Nikkei up on Japan FX intervention

SINGAPORE: Japan intervened in foreign exchange markets for the first time in six years on Wednesday, Sept 15 to stem economic damage from the surging yen, pushing its currency sharply lower and lifting Tokyo stocks by more than 2 percent.

The dollar rose more than 2 percent to 85.18 yen by midafternoon, rebounding from a fresh 15-year low of 82.87 yen against the Japanese currency hit in early trade.

The euro sterling and the Australian dollar also rose against the yen, though traders doubted Japan had bought anything but dollars for yen.

Leading European shares opened slightly lower, pausing after an almost uninterrupted winning streak since early September as traders awaited more economic data from the euro zone and the United States.

In Japan, Finance Minister Yoshihiko Noda confirmed the country had intervened in currency markets for the first time since 2004, saying Tokyo was communicating with authorities overseas but indicating that it had acted alone.

Market sources said it continued to intervene through the morning, selling the yen to stem a rise that was threatening the country's fragile economic recovery.

The Nikkei reversed early losses and surged 2.3 percent on word of the intervention. Shares of exporters, which have been dogged by the yen's strong gains this year, were among the biggest winners, with Sony Corp rising 4 percent.

The MSCI index of Asia Pacific stocks outside Japan rose 0.3 percent, focusing more on questions surrounding the global economic recovery and held in check by a lacklustre performance on Wall Street overnight.

Investors will be looking to U.S. industrial production data later in the day after promising retail sales reports on Tuesday added to optimism that the U.S. recovery, while slow, is not stalling.

Growing concerns about the health of the U.S. economy in recent months have dented business confidence, with a Reuters survey showing sentiment at Asia's top companies fell in the third quarter, the first decline in six quarters.

"The increased concern about a double-dip in the West, mainly the United States, coupled with concern about how far Chinese policy makers will go with tightening measures are weighing on sentiment," said Kirby Daley, a senior strategist at Hong Kong brokerage Newedge Group.

"BUYING TIME"

Unlike the rest of Asia, which has rebounded quickly from the global financial crisis, Japan's recovery has been far more precarious. Exports, the lone bright spot in the economy, have been jeopardised by the yen's jump of more than 11 percent against the dollar so far this year through Sept 14. Prime Minister Naoto Kan's government has been trying to talk down the yen in recent weeks but had stopped short of intervening in the markets, apparently worried that acting without Group of Seven partners would not be very effective.

Kan was re-elected ruling party leader on Tuesday, decisively fending off a challenge from powerbroker Ichiro Ozawa, an outspoken advocate of intervention.

But it was unclear whether Kan's government had the stomach for a prolonged and expensive campaign similar to Japan's last foray into foreign exchange markets in 2003-2004.

"The intervention can buy time, but the government simply can't intervene heavily for a long time as its effect will run out quickly," said Masaru Hamasaki, senior strategist with Toyota Asset Management in Tokyo.

Simon Flint, Nomura Securities' global head of foreign exchange research based in Singapore, said Japan will be seen as a special case by other world powers.

"Obviously, its economy has been in significant trouble for a while, stocks have been depressed for some time, export performance relative to the Asian peer group has been very weak. To some degree there will be some sympathy in the rest of the world for Japan's predicament."

Other markets were broadly lower on Wednesday.

Spot gold a traditional safe port of call amid volatile currency and stock markets, edged down after having surged more than 2 percent to a record $1,274.75 an ounce in the previous session.

Oil prices also fell after Enbridge Inc said repairs to a key pipeline taking Canadian crude to the United States were nearly complete and it hoped to gain approval to resume shipments.

U.S. crude for October delivery was down 44 cents, or 0.57 percent, at $76.36 per barrel. - Reuters


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