FOREX-Yen down on pension fund comments, UK wages eyed

Wed Apr 16, 2014 4:15am EDT

Related Topics

* Dollar, euro buoyed by surge for Nikkei

* Japan finmin upbeat on economy, offers hint of pension fund action

* Euro ticks up against dollar ahead of final inflation

* UK labour report expected to be positive for sterling (New throughout, changes dateline from TOKYO)

By Patrick Graham

LONDON, April 16 (Reuters) - The yen fell against the dollar and the euro on Wednesday, hit by comments by Japan's finance minister that traders took as a sign of future buying by its giant state pension fund of Tokyo stocks.

The inverse relationship between the Nikkei share index and the yen is one of the foreign exchange market's long established trends. Foreign players traditionally sell the yen to hedge purchases of Japanese shares while a stronger Nikkei typically makes Japanese investors more comfortable with investing abroad, also a negative for the currency.

The share index surged to a 3 percent daily gain on Wednesday on the back of Finance Minister Taro Aso's promise that "moves" by the $1.26-trillion government pension fund would become apparent from June.

That came amid rhetoric from Japanese officials read as generally cooling the prospect of more monetary easing in Prime Minister Shinzo Abe's push to drive up inflation and get Japan growing again.

"Some of the recommendations for the pension fund are going to be implemented shortly and that story would explain the move overnight," said Ian Stannard, head of European currency strategy with Morgan Stanley in London.

"But overall the risk is that we do get another setback (for the dollar) in the short-term. They're playing down the need for more policy action and that's going to leave the market quite disappointed and the yen well supported."

The yen weakened to 102.20 yen per dollar and 141.46 per euro, down 0.3 and 0.4 percent respectively.

The day's first focus in European time will be British labour market data, expected to show the first real rise in wages since the 2008 financial crisis after another fall in annual inflation on Tuesday.

A number of analysts say that will provide a boost for sterling, which has stalled after gaining more than 10 percent over the past 12 months on growing expectations of a rise in interest rates next year.

"The profile for inflation is going to be fairly weak and we think that will take the steam out of the rates debate," Stannard said.

"But wage rises are just the sort of pick-up that the economy and sterling needs. There is still some upside here against the dollar though I would look more to play the crosses against other currencies."

The pound ticked up 0.2 percent to $1.6758.

RESISTANT

The euro showed further signs of resilience to the more explicit opposition shown recently by European Central Bank officials to further gains, rising 0.2 percent against the dollar.

At 1.3839, it remained below levels seen before ECB President Mario Draghi's verbal intervention on the currency at the weekend, but just a cent off 2014 highs in a market already thinning out ahead of the Easter break.

"Quiet markets could see the euro drift up to 1.3850 and we imagine there are plenty of stops on short EUR positions near 1.3880," said Chris Turner, a strategist with Dutch bank ING in London.

"The focus (for the dollar) today will be on whether U.S. housing starts and building permits can rebound back to their highs, industrial production and also on Fed speakers."

Fed Chair Janet Yellen was due to speak on monetary policy and the economic recovery before the Economic Club of New York later on Wednesday. (Editing by Sonya Hepinstall)

FILED UNDER: