Yen Near Two-Week Low Versus Euro as Nuclear Crisis Eases, Stocks Advance

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From International Desk - International Currency News

The yen was within 0. 4 percent of a two-week low against the euro as Asian stocks rose and progress by Japan in restoring a crippled nuclear plant s cooling systems reduced demand for the currency as a refuge.

The euro was 0. 1 percent from the strongest in four months against the dollar on speculation European Central Bank officials will reiterate this week their willingness to raise interest rates next month. The yen erased earlier losses against the greenback on concern Japanese investors are repatriating overseas assets. South Korea s won rose on bets policy makers will allow the currency to strengthen to temper inflation.

The markets appear to be taking the view that the situation at the nuclear plant is stabilizing, said Akira Hoshino, Tokyo-based chief manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd. , a unit of Japan s largest lender by market value. Risk aversion may ease, which would likely be negative for the yen.

The yen traded at 115. 14 per euro at 1:10 p. m. in Tokyo from 115. 26 in New York yesterday, after falling to 115. 57 on March 18, the weakest since March 4. Japan s currency was at 80. 97 per dollar from 81. 03, after earlier dropping 0. 3 percent. The euro bought $1. 4220 from $1. 4226, after climbing to $1. 4240 yesterday, the strongest since Nov. 5.

The MSCI Asia Pacific Index of shares rose 1. 7 percent and the Nikkei 225 (NKY) Stock Average surged 3. 6 percent, as Japanese trading resumed after a public holiday yesterday.

Containment Units

Radiation containment units at Japan s Fukushima Dai-Ichi nuclear reactors are intact and the situation is on the verge of stabilizing, a U. S. Nuclear Regulatory Commission official said yesterday. Prime Minister Naoto Kan said he can see light at the end of the tunnel even as smoke at two reactors hampered efforts to restore cooling systems at the plant.

The yen strengthened to a post-World War II high of 76. 25 per dollar on March 17 after a magnitude 9. 0 earthquake and deadly tsunami the previous week fueled speculation Japanese investors will bring home overseas assets to pay for reconstruction.

The G-7, which comprises the U. S. , Japan, Germany, the U. K. , France, Canada and Italy, intervened to weaken the yen on March 18, saying in a statement that member nations would provide any cooperation with Japan. Barclays Capital and RBS Securities Inc. estimate the G-7 sold about 2 trillion yen ($24. 7 billion). A stronger currency hurts the competitiveness of Japanese exporters.

Expect Further Actions

We would expect further actions by the Japanese authorities, either in isolation or with support from G-7 partners, to resist renewed yen appreciation, analysts led by Hans-Guenter Redeker, London-based global head of foreign- exchange strategy at BNP Paribas SA, wrote in a note yesterday.

Japanese Finance Minister Yoshihiko Noda said the G-7 nations will cooperate as appropriate and monitor developments in foreign-exchange markets. Speaking to reporters in Tokyo today, he said the G-7 s joint intervention on March 18 was meaningful in helping to stabilize currency markets.

The yen erased earlier losses against the dollar on speculation Japanese companies are bringing home earnings on overseas assets.

Reconstruction and payouts of insurance will increase demand for the yen, said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd. , which provides foreign- exchange margin-trading services. The dollar-yen rate will struggle to rise.

Strong Vigilance

The euro held three days of gains versus the dollar before ECB Governing Council member Guy Quaden speaks in Brussels today and fellow member Axel Weber delivers a speech in Frankfurt tomorrow. Central bank officials Gertrude Tumpel-Gugerell and Yves Mersch both said yesterday that strong vigilance is necessary to keep a lid on inflation.

Vigilance has often been used as code for an impending rate rise, John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd. , the nation s largest lender, wrote in a note to clients today. More hawkish ECB rhetoric helped underpin the euro s rise.

The ECB will increase its target rate by 122 basis points over the next 12 months, up from 111 basis points yesterday, according to a Credit Suisse Group AG index.

The won rose for a third day on speculation South Korean authorities will allow the currency to strengthen to stem an increase in consumer prices.

The willingness of government officials seems to be leaning toward greater flexibility in foreign-exchange policy in the face of these increasing imported price pressures, said Wai Ho Leong, a regional economist at Barclays Plc in Singapore. Japan s nuclear situation is stabilizing and is likely to be containable.

Korea s biggest economic test is taming inflation as price gains are set to remain elevated, central bank Governor Kim Choong Soo said March 16. Inflation accelerated to a two-year high of 4. 5 percent in February from a year earlier, government data showed on March 2.

The won appreciated 0. 2 percent to 1,122. 50 per dollar.

Courtesy: Business Recorder

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