FOREX-Yen nears recent low vs dollar before Japan election

Fri Jul 19, 2013 11:57am EDT

Related Topics

* Japan PM Abe's party expected to win, would pressure yen
    * Dollar rises to one-week high vs yen
    * Australian dollar rises after China central bank move

    By Wanfeng Zhou
    NEW YORK, July 19 (Reuters) - The dollar held near a
one-week high against the yen on Friday ahead of Japan's upper
house elections, which could add momentum to Prime Minister
Shinzo Abe's aggressive push for monetary easing to lift growth
and fight deflation.
    Opinion polls show Abe's ruling Liberal Democratic Party and
its New Komeito Party coalition partner are on track to win a
hefty majority. That would give him more freedom to push his
agenda of monetary easing, public spending and structural
reform, which could weigh on the yen.
    "What appears to be clear, barring any sharp surprises in
the outcome, is that Mr. Abe is likely to consolidate his power
and maintain course for an accommodative fiscal and monetary
policy," said Boris Schlossberg, managing director of FX
Strategy at BK Asset Management in New York.
    "That in turn should prove to be dollar/yen bullish unless
the (Japanese government bond) market in Japan turns volatile
once again," he added.
    The dollar hit a one-week high of 100.86 yen,
according to Reuters data, before pulling back slightly to
100.39 yen, or little changed on the day. Resistance was cited
at the July 8 high of 101.53 yen. The dollar is up more than 15
percent against the yen so far on the year.
    The euro rose 0.2 percent to $1.3141, while the
dollar index was down 0.3 percent at 82.605, above
Wednesday's three-week low of 82.342. 
    Earlier in the session, the yen strengthened after Japan's
benchmark Nikkei stock average slipped. A fall in
equities can increase risk aversion and spark demand for the
yen, a traditional safe-haven currency.
    But analysts said the yen remained vulnerable to the Bank of
Japan's massive monetary expansion, while the dollar has been
supported by prospects that the U.S. Federal Reserve could start
scaling back its stimulus.
    The Bank of Japan will tell Group of 20 finance ministers
and central bankers meeting in Moscow that it will "strongly
pursue" its qualitative and quantitative policies, BOJ Governor
Haruhiko Kuroda said, in a reference to its actions to lift
growth and end deflation. 
    While the options market has been showing demand for
dollar/yen puts, or bets the dollar will lose ground, one-month
risk reversals have narrowed to around 1.1 vols in
favor of dollar puts on Friday from 1.75 vols on July 11,
indicating market players have trimmed their yen strength bets.
    Chris Turner, head of FX strategy at ING, said any strength
in the yen would be temporary and risk reversals suggest markets
are slightly less concerned about a big correction lower in
dollar/yen.
    "The focus is very much on beating deflation over the next
two years, and the Bank of Japan is committed to doubling its
balance sheet by the end of 2014," he said, which will involve
pumping yen into the market.
    Some strategists also cautioned that with expectations so
high, if Abe does not manage to win a landslide victory, there
was an outside chance this could lift the yen.
    "It could put a question mark on Abe's policies and be yen
positive," said Niels Christensen, FX strategist at Nordea.
    The Australian dollar rose after China's central
bank announced long-awaited interest rate reforms, a move it
said would help lower financing costs for companies. China is a
major export destination for Australia. 
    The Australian dollar rose 0.4 percent to $0.9196.
    China's central bank announced long-awaited interest rate
reforms on Friday, removing its floor on lending rates for
commercial banks, meaning that banks will now be able to cut
rates as much as they see fit to attract
borrowers.
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