Thursday, September 16, 2010

Yen sinks on Japan intervention; stocks drift

NEW YORK: The dollar posted its largest daily gain against the yen in nearly two years as Japan began selling its currency on foreign exchange markets on Wednesday, Sept 15 while global economic uncertainties weighed on stocks.

Prices of two-year U.S. Treasuries rose as traders anticipated the Bank of Japan may soon buy shorter-dated U.S. debt to park dollars coming in from its currency intervention, the first in more than six years.

Japanese shares jumped as a weaker currency should benefit exporters. Nikkei stock futures traded in Chicago continued to gain late in the afternoon, with the December contract rising 10.0 points to 9.660 points.

But weak U.S. manufacturing data rekindled concerns about the global economic recovery, weighing on global stocks and keeping gold prices near record highs.

Meanwhile, the yuan scored its fastest five-session rise against the dollar in more than two years, as U.S. pressure mounts again over the value of the Chinese currency.

Japanese authorities sold more than 2 trillion yen ($23.37 billion) on Wednesday, according to market estimates, and promised to keep intervening in the foreign exchange market to protect its fragile economic recovery.

But analysts questioned whether the government may eventually curb the strength of the yen, which recently reached its highest level in 15 years, threatening Japanese exporters.

"Speculators have been long of yen so there is scope for further yen selling. But there's skepticism over whether the Japanese can change the trend as fundamentals haven't altered," said Beat Siegenthaler, a foreign exchange strategist at UBS.

The dollar remains nearly 8 percent lower this year against the yen, which is seen by investors as a safe haven from concerns over global growth.

The dollar jumped 3.23 percent to a 85.73 yen, after having dropped to a 15-year low of 82.87 yen earlier, and was up 0.5 percent against a basket of major currencies.

Japan's intervention also helped send the euro, Australian dollar and sterling sharply higher on the day against the Japanese currency, although traders doubted Tokyo had bought anything other than dollars.

The euro was up 3.3 percent at 111.50 yen.


The Chinese yuan rose 0.77 percent against the greenback from its close of 6.7943 on Thursday last week.

Dealers said, however, that the yuan's latest rally also coincided with the dollar index's 1 percent decline in global markets over the same period. They warned that a pullback in the yuan's rise could occur as soon as Thursday if the dollar rebounds globally.

"U.S. pressure may be the key reason for the PBOC to let the yuan rise recently, but global dollar weakness has also offered an easy excuse," said a trader at a European bank in Shanghai.

"If things run out of control, the PBOC could equally make a global dollar rebound an excuse to pull the yuan back sharply."


Japan's benchmark Nikkei stock index rose 2.3 percent, supported by gains for exporters like Toyota Motor Corp, which climbed 3.8 percent.

But weak U.S. economic data weighed on world stocks, with the MSCI All-Country World index edging higher a modest 0.11 percent.

U.S. industrial output decelerated in August while a measure of New York state business conditions slipped to its lowest level in more than a year, reigniting fears that the world's largest economy could be slowing.

"Pretty much everything was down across the board as far as the data, and the market really didn't flinch. It recovered quite nicely once the bell rang," said Dan Cook, senior market analyst at IG Markets in Chicago. "Maybe we are just taking a pause before that next charge begins."

The Dow Jones industrial average ended 46.24 points, or 0.44 percent, at 10,572.73, while the Standard & Poor's 500 Index rose 3.97 points, or 0.35 percent, to 1,125.07. The Nasdaq Composite Index gained 11.55 points, or 0.50 percent, to 2,301.32.

In Europe, the FTSEurofirst 300 of top shares slipped 0.28 percent, pressured by disappointing economic numbers and a sharp decline in oil prices.


The U.S. Treasury yield curve steepened as investors bet any buying by Japan in the wake of its currency intervention would likely take place in shorter-dated debt.

The 2-year U.S. Treasury note rose 1/32 in price, with the yield at 0.4835 percent, while the 30-year bond fell 45/32, with the yield at 3.8766 percent.

Oil prices fell 1.02 percent to $76.02 a barrel, down for the second day, as traders bet that a key pipeline that carries oil from Canada to the U.S. Midwest will restart soon, following news that repairs to the damaged facility had been completed Tuesday night.

Gold prices remained practically stable at $1,267.60 an ounce, near its record peak of 1,274.75 set on Tuesday.

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