The US dollar rose versus the yen on Friday after data showing sharp declines in Japan's industrial output and inflation fuelled speculation the Bank of Japan would pump large amounts of cash into the economy. However, the dollar fell against the euro amid a grim outlook for the US economy at the start of 2009 and as trading thinned out ahead of the year end.
The euro also advanced against the yen. "Markets are now counting on the Bank of Japan to follow the (Federal Reserve)'s lead and begin 'quantitative easing,'" said Chris Gaffney, vice president at EverBank World Markets, in St. Louis, Missouri, in a note. "If Japanese policy-makers do adopt aggressive quantitative easing, the yen could see a fall in value."
In late trading in New York, the dollar was 0.3 percent higher at 90.64 yen after earlier trading as high as 90.83 yen. The greenback was on track for its first weekly rise - of about 1.7 percent - against the yen since the week to November 9, when it rose about 0.5 percent.
Government data on Friday showed Japan's industrial production dived a record 8.1 percent while annual core consumer inflation slowed sharply, to 1.0 percent in November, underscoring fears the world's second-largest economy could sink back into deflation next year.
"Simply miserable data from Japan," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "The market knew conditions had deteriorated, but did not appreciate the magnitude. The increasingly unpopular government has already announced two modest fiscal stimulus plans ... more needs to be done."
In one of the boldest official comments on unorthodox policy measures, Bank of Japan policy board member Hidetoshi Kamezaki said on Thursday that the bank should consider ways to influence longer-term interest rates and corporate debt products if more easing steps are needed.
The Bank of Japan last week lowered interest rates to close to zero, mirroring steps by the US Federal Reserve, and moved to pump funds into the market to ease a corporate credit crunch. A Reuters poll on Monday showed that the BoJ is expected to adopt quantitative easing in January-March, further easing monetary policy to combat a deepening recession.
EURO ADVANCES: Most major currency pairs were confined to narrow ranges and volume was lighter than usual with most Asian and European markets closed. Trading resumed in the United States after markets were shut on Thursday for the Christmas holiday.
The euro was 0.4 percent higher at $1.4062. Against the yen, the euro strengthened 0.7 percent to 127.45 yen. The single euro zone currency was also supported by expectations that the European Central Bank will lower interest rates further from the current 2.5 percent, but at a slower pace.
"The foreign exchange market is quiet, with the dollar sporting a softer profile, but range trading continues to be the dominant story," Chandler said. "Although thin market conditions may make for some whippy trading, in general over the coming sessions, the risk is that the euro's range is extended to the upside, with potential toward $1.4170 and $1.4270 before New Year's."
The euro also rose to a fresh high versus sterling at 95.96 pence, according to Reuters data. It last traded up 1 percent on the day at 95.93 pence. In other trading, Russia's central bank allowed this month's eighth mini devaluation of the rubble on Friday after the country's main export earner, oil, neared $30 per barrel.
Comments
Comments are closed.