Yen Slips Broadly On Low Rates Focus, Flows
Reuters, December 19, 2005
NEW YORK (Reuters) - The yen slipped broadly on Monday after touching a seven-week peak against the dollar as the market's focus shifted back to expectations of a prolonged period of near-zero interest rates in Japan.
Some investors also cited flows out of the Japanese currency to buy bonds denominated in other currencies as a reason for its weakness.
"Japanese life insurers and importers were seen buying dollar/yen overnight. The issuance of different Uridashi bonds before Dec 22 should amount to 55 billion to 60 billion yen. We may have seen some buying ahead of this issuance from Japanese investors," said Paresh Upadhyaya, currency portfolio manager with Putnam Investments in Boston.
Uridashi are bonds issued by Japanese institutions in foreign currencies. Some of the upcoming issues will be issued in New Zealand and Australian dollars, Upadhyaya said.
The yen has been under pressure as interest rate differentials between Japan and other developed countries, especially the United States, widened, prompting investors to sell yen for other high-yielding currencies.
In the past few sessions the yen rebounded sharply, with the dollar suffering its biggest one-week loss in six years, but such yen-positive flows are petering out ahead of the year end.
"The yen's position liquidation looks to be over. Now that all positions are out of the way, the market will be looking for the dollar/yen back up above 117-118," said Adam Myers, currency strategist at UBS.
"Yen weakness is mainly because of the disappointment over a delay in (the Bank of Japan's policy) tightening. The whole market was expecting a much sooner move."
But some analysts in the United States said the market's expectations for Bank of Japan moves had not appreciably shifted and that yen weakness was more attributable to profit taking after the Japanese currency's sharp rally last week.
"Euro/yen has bounced heavily from the Friday lows. If we close above 139 yen I think we will be set for at least rangy trade, up to about 143 yen, but if we close below 139 think you will see yen strength resume. That is more of a psychological or technical play," said Tim Mazanec, director and senior currency strategist with Investors Bank & Trust in Boston.
"The dollar has been somewhat stronger today on technical moves and daily flows," Mazanec added.
By late morning, the dollar was trading at 115.96 yen , up 0.2 percent from late Friday. Traders said a 115.50 yen options strike, which supposedly expired at 1500 GMT, had provided support for the dollar during Asian trading hours.
Earlier this month the dollar rose to a 32-month high around 121.40 yen. The euro hit a record high against the yen of 143.61 .
On Monday, the euro was down 0.1 percent at $1.1997 .
The euro showed little initial reaction to remarks by European Central Bank chief economist Otmar Issing who said in a newspaper interview the central bank cannot ignore the euro zone's loose monetary conditions and increased risks to price stability.
Against the Swiss franc , the dollar was up about 0.3 percent at 1.2931 francs.
Sterling was down 0.5 percent at $1.7627.
Profit taking in dollars may take hold over the next few days, some said.
"Dynamics of the year end are going to come into play starting this week. The HIA (Homeland Investment Act) flows which were very influential in the fourth quarter may have dried up," which removes one source of support for the dollar, said Tim O'Sullivan, trading manager with Gain Capital in Warren, New Jersey.
The HIA offers a one-time reduced tax rate for foreign subsidiaries of U.S. companies repatriating earnings into dollars during 2005.
