Yen falls broadly

The yen was broadly lower on Monday as optimism about the world economy saw investors increase bets on currencies linked to global growth and higher yields, such as the Australian and New Zealand dollars. The yen has been on the defensive after data on Friday showed US existing-home sales rose in July for a fourth straight month, and due to upbeat comments on the global economy from Federal Reserve Chairman Ben Bernanke.
Such factors helped lift the US Standard & Poor's 500 Index to a 10-month intraday high on Friday. The low-yielding yen tends to fall against higher-yielding currencies when equities rise or economic data strengthen hopes for a recovery in the global economy.
Signs of some stabilisation in Chinese equities were another supportive factor for higher-yielding currencies against the yen, said Masashi Hashimoto, senior analyst for Bank of Tokyo-Mitsubishi UFJ. "There is a sense that falls in Chinese shares may be abating, and that seems to be a significant factor," he said.
Chinese shares edged up 0.6 percent, after turning negative earlier. Their moves were relatively mild compared with a recent bout of volatility that has caught the attention of currency traders. Some market players, however, say the currency market's focus on Chinese shares may soon start to fade, given that major stock markets have been firm despite the sharp pullback in Chinese equities over the past several weeks.
"The market's risk-taking will likely continue switching on and off along with the economic environment, but range-trading is expected to stay," said a trader at a Japanese securities firm.
The Australian dollar rose 0.4 percent to 79.40 yen and the New Zealand dollar edged up 0.4 percent to 64.88 yen. The dollar rose 0.4 percent from late US trading on Friday to 94.81 yen, pulling away from a one-month low of 93.42 yen hit on trading platform EBS on Friday. With its rise on Monday, the dollar has clawed above resistance at the bottom of the cloud on daily Ichimoku charts.
But Bank of Tokyo-Mitsubishi UFJ's Hashimoto said it was too early to draw any conclusions, saying the dollar's moves over the entire day need to be watched. In addition, on weekly Ichimoku charts, the dollar faces resistance at levels around 95.50 yen, making it unlikely that the greenback will rise towards levels such as 98 yen to 99 yen this week, he said. The euro held firm after a euro zone service sector and manufacturing survey on Friday showed more improvement than expected.
The euro was steady against the dollar to $1.4328 and rose 0.5 percent against the yen to 135.86 yen. US Federal Reserve Chairman Ben Bernanke said on Friday that the global economy appears to be on the mend after a deep downturn, but added that the recovery is likely to be sluggish and risks remain.
"Bernanke's comments suggest better conditions for the US economy and a virtual end for the recession," said Stephen Roberts, an economist at Nomura Australia. "All the upbeat comments and better economic data are supporting appetite for high-yielders."
Despite such factors, gains in higher-yielding currencies against the yen may be limited in the near-term, said a trader for a major Japanese bank. "It is not a situation to become pessimistic, but optimism has been factored in rather sufficiently, so it is hard to chase them higher," said a trader for a major Japanese bank, referring to the outlook for yen crosses.
The market will be eyeing US consumer data this week for incentives, traders said. The Conference Board will release its August consumer confidence index on Tuesday and Reuters/University of Michigan will report on its late August snapshot on consumer sentiment on Friday. US housing market data and revised second-quarter gross domestic product are also slated for this week.