The long selling has formed a bottom–USD- JPY

 

Global softness combines with the sharp adjustments in commodity and equity security markets, decisive government intervention and the continued monetary stimulus in developed economies are key factor influencing the flows in foreign exchange markets.

The USD is consolidating and it is in the recovery mode. The fragile European fundamental couple with the intervention of Japan and Switzerland along with the FED asset reallocation and equity market sell-off all pointing a positive move in the USD in the upcoming months.

Please see the appendix for the global forecast of the upcoming period up to Q1 2013.

CURRENCY OUTLOOK

USD/JPY

The USD/JPY will remained extremely stable due to the recent financial turmoil, the low yield spreads and continued risk aversion make it range bound within the region of 76 to 78. However, position in USDJ/JPY is bullish as financial market volatility will falls and market participant will be more focus towards fundamentals. The year-end USD/JPY target is of 80.

USD/CAD

The Canadian dollar is trending lower on the back of rising global risk aversion driven by uncertainty in Europe, The rapid shift is seen by in the market participants in portfolio holdings to highly liquid US assets and away from risk assets like CAD. The weakness will continue until there is stability in Europe. Accordingly, though the current outlook looks fairly bleak for CAD, we would expect a general retracement of some of the recent losses as we approach year-end. The uncertainty and vulnerability of US economy, with the growth estimates on the lower side is in turn pulling the Canadian outlook down. We anticipate further near-term CAD weakness before markets stabilize and the CAD will lose the year near to parity with the USD.

JAPAN CURRENCY FUNDAMENTALS

The safe heaven waves will continue to support the Japanese yen (JPY) while the country’s manufacturers envisage an improvement in economic conditions. The disaster earth–quake economic impact on Japan growth will be small as compare to the recovery which will be seen in the year 2012 due to the post construction after earthquake and economic recovery activities. Japan massive rebuilding effort and the rebound in auto & electronic manufacturing will lift the economy through remainder of the year and most of 2012.

The country’s manufacturer shows an improvement which is evidenced by the recent Tankan survey. The Japan industrial output has risen for the fifth consecutive month. The Industrial production in August is increased to 0.8% and show an increase of 0.6% from the previous year. The third quarter activity is 6% more from the first quarter readings.

The previous monthly report Bank of Japan (BOJ) states that the Japan economy is improving slowly but surely. Production and export are consistently increasing approving pre-quake levels. Investment and consumptions are also on the right track. The values of japan export are back to the pre earth-quake levels.

The latest retail sales reading are lower but the car sales are still showing the buoyed patterns and the gains are in momentum. The reconstruction effort is likely to gather momentum during the complementary part of 2011 and through 2012. GDP will expand by a meagre 0.3% this year, with a 3.2% rebound anticipated for 2012.

The rising yen is not favourable for the Japanese government and we have seen several interventions in the past from the BOJ to stabilise the currency situation and huge buying interest is seen from the Japanese government. The region of 75 is another potential area where more BOJ intervention is expected if the level of 75.95 is breached.

The BOJ is committed to continue the virtually zero interest rate policy until it judges the rice stability in order for japan economy to avoid the risk of deflation.

UNITED STATES OF AMERICA CURRENCY FUNDAMENTALS

The steady recovery of USD is shaping. Although the employment rate is high and housing market is a moving at a very slow pace couple with the slow recovery of the consumers spending. The USD benefit from strong fiscal and monetary stimulus. The liquidity support from the FED asset purchase program remains intact despite unattractive US treasury yields (10-year bonds valued at 1.74%). In addition, the acute sell-off in emerging markets also injected an element of support to the USD. The consensus forecast of GDP growth remain unchanged for the year 2011 i.e. 1.7% q/q annualized. Recent indicators confirm that a gradual recovery is under its way.

The quality of the US corporate balance sheets and capital investments are improved. The improvement in the quality of asset should help to ride out this slow economic activity period allowing business to take advantage of future opportunities such as additional expansions to emerging markets which is supported by the weaker dollar.

CANADA CURRENCY FUNDAMENTALS

The Canadian economy has shown a solid recovery in the first quarter of 2011 but the second quarter shows a contraction. The factors which rallied the growth during spring gradually disappear. Most notably, motor vehicle & parts assemblies that had been sharply curtailed by global supply disruptions are essentially back on track. The GDP show a good position in the month of July suggesting that a third quarter has a better start but there are other factors which hinder the growth.

The weaker growth of US and intensifying sovereign debt concerns in Europe are unnerving the financial markets. The latest data suggest that the economy continue to remain modest. The labour market is showing the sign of slowing and the consumer confidence is steady in the month of September. The retailers reported stable sales. The auto sales are down but remain in line with the average of the past decade.

The housing markets are cooling off with potential buyers is taking advantage of historically lower interest rates. As long as the debt crisis of Europe continued and with the heightened degree of economic uncertainty and financial market volatility, we expect consumers and businesses to remain cautious spenders for the time being. Meanwhile exports are restrained by slow global demand, particularly from the United States, which accounts roughly 75% of Canadian international shipments.

CANADA AND UNITED STATES Adrienne Warren +1 416 866-4315

Fundamental

INTEREST OUTLOOK

Please find below the interest outlook for Japan, United States and Canada

UNITED STATES	CANADA	JAPAN
The Federal Reserve will keep its fed funds target rate on hold until Q3 2013, in line with the Fed’s loose commitment made in August. Indeed, should further monetary easing be deemed essential, unconventional policies will likely be engaged once again. However, the options are now more limited after the Fed engaged in “Operation Twist” last month, shifting US$400 billion worth of Treasury securities with maturities of 3 years and under into Treasury securities with maturities of 6 out to 30 years by the end of June 2012. While the Fed has acknowledged that the impact of the operation has been, and will continue to be, modest, it is the Fed’s view that lower borrowing costs will provide further support for the US economy, especially when fiscal policy is at a standstill.	The Bank of Canada (BOC) to remain on the side-lines until the end of Q3 2012, with the risk of an even longer holding period pending developments in Europe’s debt situation, US politics, and Canadian domestic growth. Indeed, continued financial market turmoil and a sharp reduction in both business and consumer confidence have put downward pressure on global economic activity, raising the risk of weaker growth prospects for Canada. Real GDP has already come in weaker than expected in Q2 with a mild contraction while the risks of another weak print in Q3 have increased. Inflation, on the other hand, has come in slightly higher than originally expected.	The Bank of Japan (BOJ) has a low interest rate policy for more than two decades as being export base country. The same interest will continue in the upcoming periods. The (BOJ) decided to extend the deadline for new applications for loans under the "Funds-Supplying Operation to Support Financial Institutions in Disaster Areas" by six months, up to April 30, 2012. It also decided to extend the effective period of the "Relaxation of the Collateral Eligibility Standards for Debt of Companies in Disaster Areas" by six months, up to April 30, 2013.

APPENDIX

Currency	Currency Pair	Actual 16-10-2011	Q2 - 2011	Q3 - 2011	Q4 – 2011	Q1- 2012	Q2-2012	Q3-2012	Q4-2012	Q1-2013
YEN	USD/JPY	77.24	81	77	78	79	80	81	82	83
Canadian Dollar	USDCAD	1.01	0.96	1.05	0.99	0.98	0.98	0.98	0.98	1

Source: Consensus Economics Inc. September 2011

Fed’s ‘Extended’ Pledge May End in 2011, Economists Say

Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: Andrew Harrer/Bloomberg

April 26 (Bloomberg) -- Michael Purves, chief market strategist at BGC Financial LP, and Steven Blitz, a senior economist at ITG Investment Research Inc., talk about the U.S. economy and Federal Reserve policy. They speak with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Federal Reserve officials will probably prepare to pull back from record stimulus by dropping a pledge this year to hold the main interest rate near zero for an “extended period,” according to a Bloomberg News survey.

Thirty-three of 44 economists surveyed said the central bank will remove the two-word phrase from its post-meeting statement in 2011, with 18 betting it will move by September. The Fed may wait until 2012 to announce sales of mortgage or Treasury securities it bought to reduce borrowing costs, with 26 respondents expecting a plan next year, according to the survey, conducted from April 20 to April 25.

Chairman Ben S. Bernanke, who gives his first press conference today after a meeting of policy makers, has signaled he wants to ensure the U.S. economy has achieved self-sustaining growth before the Fed starts to raise borrowing costs and trim its $2.69-trillion balance sheet. Regional Fed presidents, including Philadelphia’sCharles Plosser, have said the Fed may need to contain inflation by raising interest rates this year.

“They’re trying to walk this path, given all the economic uncertainties, between people who want to stay very, very easy and people who want to tighten up the grips pretty quickly,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

The Federal Open Market Committee will release its statement at 12:30 p.m. in Washington at the end of a two-day meeting, which resumed today at about 8:30 a.m. After prior meetings, the FOMC released the statement at 2:15 p.m. Instead, Bernanke is scheduled at that time to meet the press, and the Fed will release economic projections of policy makers, three weeks earlier than its practice since 2007.

End as Planned

Economists expect little change in the FOMC statement today compared with its post-meeting comments on March 15. The Fed will probably confirm that its $600 billion of Treasury purchases, dubbed QE2 for the second round of quantitative easing, will end as planned in June, Silvia said. All 83 economists in a separate survey predict the Fed will keep the main interest rate in a range of zero to 0.25 percent, its level since December 2008.

Since the Fed announced the second round of asset purchases on Nov. 3, yields on 10-year Treasuries increased to 3.31 percent as of yesterday from 2.57 percent, while the Standard & Poor’s 500 Index gained 12 percent, yesterday reaching the highest level since June 2008. The dollar has weakened by 3.5 percent to the lowest since August 2008 against an index of six currencies.

Top Lieutenants

Bernanke and his colleagues are debating how the central bank should respond, if at all, to the 1 percentage-point drop in the jobless rate since November and surging food and fuel prices. The chairman and his top two lieutenants, Vice Chairman Janet Yellen and Federal Reserve Bank of New York President William C. Dudley, indicated this month they don’t see an immediate need to tighten credit because the boost to inflation is likely to prove temporary.

“So long as inflation expectations remain stable and well anchored” and the rise in commodity prices slows, then “the increase in inflation will be transitory,” Bernanke said April 4 in response to audience questions after a speech in Stone Mountain, Georgia.

Food and beverage prices rose in the first quarter by the most since 2008, based on the Labor Department’s Consumer Price Index, while the cost of regular, unleaded gasoline has increased by 26 percent this year to $3.88 a gallon as of April 25, the highest since 2008. One measure of inflation expectations, the yield difference between 10-year inflation- linked debt and comparable-maturity Treasuries, has traded within a range of 2.42 percentage points to 2.64 points since February, Bloomberg data show.

Inflation Gains

The inflation gains helped slow U.S. growth to a 2 percent pace in the first quarter, the median estimate of analysts surveyed by Bloomberg News, from 3.1 percent in the prior quarter. The government releases preliminary figures tomorrow.

The Bloomberg survey focused on the “extended period” phrase and also found that 32 of 44 economists expect the Fed this year to halt its policy of keeping its portfolio level stable by replacing maturing mortgage-backed securities with Treasuries. Nine respondents see that happening in June; 12 in the third quarter; and 11 in the fourth period.

The responses indicate that economists expect the Fed to change the statement language and allow its portfolio to shrink before raising interest rates or actively reducing the balance sheet. The Fed began the reinvestment policy in August, aiming to avoid what Bernanke said was a “passive tightening” of monetary policy just as U.S. growth slowed.

Benchmark Rate

A separate Bloomberg News survey conducted from April 1 to April 7 found that just 17 of 74 economists expect the Fed to raise the benchmark overnight lending rate this year.

Ending reinvestment “would be a signal, we believe, that the tightening cycle has begun,” said Dana Saporta, a U.S. economist with Credit Suisse in New York. She forecasts the Fed will make the move in the fourth quarter, about a year before it raises interest rates.

Asset sales wouldn’t occur until at least 2014, Saporta said. “I don’t think Bernanke would necessarily want to be the first chairman to oversee the Fed selling assets at a loss, so I think they’ll delay that.”

The Fed may start preparing investors sooner for the policy shifts with a change in its “tone,” acknowledging economic improvement and risks to inflation, Eric Pellicciaro, head of global rates investments at BlackRock Inc. in New York, said in a Bloomberg Television interview. Pellicciaro wasn’t a respondent in the survey, though he said the “extended period” phrase may change in November.

“It’s going to need to move its policy from the fifth gear down to the third gear,” Pellicciaro said.

To contact the reporter on this story: Scott Lanman in Washington atslanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz atcwellisz@bloomberg.net

Earthquake Damage May Force New Zealand to Delay Rate Increase

Reserve Bank of New Zealand Governor Alan Bollard in Wellington. Photographer: Mark Coote/Bloomberg

Buildings destroyed after an earthquake, in Christchurch, New Zealand. Photographer: Joseph Johnson/Getty Images

New Zealand will probably keep its benchmark interest rate unchanged tomorrow as the nation’s worst earthquake in eight decades curbs economic growth and slowing consumer spending reduces the threat of inflation.

Central bank Governor Alan Bollard will leave the official cash rate at 3 percent at 9 a.m. in Wellington, according to all 14 economists surveyed by Bloomberg News, after the Treasury Department projected the Sept. 4 temblor may cut as much as 0.8 percentage point from growth this quarter.

Bollard, who boosted borrowing costs for a second straight meeting in July, would join regional counterparts from Australia to South Korea to Malaysia in pausing on rates as they gauge the strength of the global economy. The magnitude 7 quake in the South Island city of Christchurch came as recent reports showed retail sales and manufacturing shrank and housing demand slowed.

“Neither growth nor underlying inflation appears to be tracking as firmly as the Reserve Bank projected when it began to raise the cash rate in June,” said Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland. “The earthquake is likely to result in a measurable loss of output and confidence in the near term.”

Shops and factories closed after the quake, which cut power and damaged more than 100,000 homes and severed water and sewage lines in and around New Zealand’s second-largest city. The Treasury says reconstruction may spur a rebound in 2011, with growth projected to be 0.5 percentage point stronger in the year ending June 30.

‘Direct Lift’

“Activity will be directly boosted in 2011 as the rebuilding phase gets under way,” said Gibbs. “Construction will provide a sizeable direct lift to the regional economy.”

Stocks of New Zealand building materials companies have surged since the earthquake on expectations of increased demand during the reconstruction period. The NZX Building Materials and Construction Index gained 8.8 percent as of 11:45 a.m. in Wellington, more than three times the all-stocks index.

Prime Minister John Key’s government will also deliver a boost to the economy with income tax cuts on Oct. 1, which will match an increase in sales tax. Bollard said Aug. 19 he will monitor the response to the increase in sales tax to determine whether underlying inflation pressures are accelerating.

Even before the quake, the chances of the bank raising rates had diminished as evidence mounted of slowing domestic demand. In June, the central bank forecast growth of 1.1 percent in the second quarter. A month later, Bollard said the outlook had “softened somewhat” and the pace of further rate increases may be more moderate.

Regional Banks

Uncertainty over the global recovery has prompted other central banks in the region to pause on rates. The Bank of Korea left its benchmark rate unchanged on Sept. 9, saying a possible U.S. slowdown and persistent European fiscal problems are risks to economic growth. The Reserve Bank of Australia on Sept. 7 kept its overnight cash rate target unchanged for a fourth month, saying growth in the U.S. looked weaker. Malaysia also kept its overnight policy rate steady after three straight increases.

A Credit Suisse index based on swaps trading shows there is a 4 percent chance of Bollard boosting borrowing costs by a quarter point tomorrow. Just one economist expects a rate increase at the review on Oct. 28, while 10 expect a move in December.

Economic Forecasts

The central bank also updates its economic forecasts tomorrow and is likely to outline a slower growth path, economists say, in line with recent reports.

House sales fell for a fifth month in August, the Real Estate Institute of New Zealand reported yesterday. Prices rose 0.9 percent from the year earlier, the institute said, citing a monthly index.

Retail sales declined 0.4 percent in July, Statistics New Zealand said yesterday, as spending fell at 14 of 24 store categories, led by vehicle dealers, liquor retailers and department stores. Spending on credit and debit cards fell 0.2 percent in August, the agency said in a report today.

“We do expect in the medium to long term the gradual recovery will continue, but it’s likely in the next 12 months demand will remain patchy,” Ian Morrice, chief executive officer of Warehouse Group Ltd., the nation’s biggest discount retailer, said last week.

Manufacturing sales volumes slumped to a 10-year low in the second quarter, according to a Sept. 9 government report. Production was led lower by seafood, fruit, meat, dairy and textiles, adding to signs that global demand for some commodity exports has slowed.

Resumption of Moves

Even so, Bollard has to take a medium-term view of the economy and inflation, which suggest rates will start rising again later this year, said Craig Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington.

“The bank should still be nervous about keeping the cash rate too low for too long,” he said. He expects a quarter-point increase in December.

Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, last month left unchanged how much it expects to pay New Zealand farmers supplying its milk because of signs that global prices may strengthen. Milk powder prices increased at an auction on Sept. 2, the Auckland-based company said.

To contact the reporters on this story: Tracy Withers in Wellington at twithers@bloomberg.net; Daniel Petrie in Sydney at dpetrie5@bloomberg.net

Japan Intervenes for First Time Since 2004 to Rein in Yen

By Toru Fujioka and Aki Ito - Sep 15, 2010 9:14 AM GMT+0500

Finance Minister Yoshihiko Noda, center, confirmed the intervention, speaking to reporters today in Tokyo. Noda said that Japan had contacted other nations about the step, without specifically saying that today’s measure was taken unilaterally. Photographer: Tomohiro Ohsumi/Bloomberg

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Sept. 15 (Bloomberg) -- Bloomberg's Mike Firn reports from Tokyo about Japan's intervention in the foreign-exchange market for the first time since 2004 to curbe a surge in the yen that threatens an export-led recovery. Finance Minister Yoshihiko Noda told reporters in Tokyo that the move was unilateral. Bloomberg's Mark Barton also speaks. (Source: Bloomberg)

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Sept. 14 (Bloomberg) -- Christian Takushi, fund manager at Swisscanto Asset Management AG, talks about Japan Prime Minister Naoto Kan's victory in a vote for control of the ruling party. He speaks from Zurich with Maryam Nemazee on Bloomberg Television's "On The Move." (Source: Bloomberg)

Japan intervened in the foreign- exchange market for the first time since 2004 after a surge in the yen to the strongest against the dollar in 15 years threatened to stunt the nation’s economic recovery.

Finance Minister Yoshihiko Noda told reporters in Tokyo that the move was unilateral. Chief Cabinet Secretary Yoshito Sengoku said the ministry “seems to think” 82 yen per dollar to be the line of defense, after it reached 82.88 earlier today. Government officials speaking on condition of anonymity have previously said volatility was a bigger concern than the level.

Prime Minister Naoto Kan was under pressure to intervene after business leaders’ calls for steps to arrest the yen’s gains, which undermine the exports propelling Japan’s growth. It may do little for the economy because Japan alone won’t be able to keep the yen from rising, said analyst Tohru Sasaki.

“In the medium-term it can’t change the overall direction” of the currency, said Sasaki, head of Japan rates and foreign- exchange research in Tokyo at JPMorgan Chase & Co., who yesterday said intervention odds had doubled after Kan’s reelection as head of Japan’s ruling party.

The yen tumbled 2.1 percent to 84.85 per dollar as of 12:42 p.m. in Tokyo, after reaching a high of 82.88 earlier today. The benchmark Nikkei 225 Stock Average climbed 2.6 percent to 9,543.38. The currency had climbed more than 13 percent against the dollar in the five months through yesterday.

Yen’s Climb

Japan’s currency has rallied amid concern about the durability of the U.S. recovery and the effect of Europe’s debt woes. The yen typically gains when investors avoid risk because of the country’s current-account surplus and deflation.

Authorities probably decided to intervene today because the yen’s climb yesterday and overnight was due to traders’ views that Kan wouldn’t take such a step, said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. Kan’s opponent to head the Democratic Party of Japan, former DPJ chief Ichiro Ozawa, had specifically called for yen sales.

It’s “pretty unlikely” officials will be able to return the yen to the level “that companies are basing their profit forecasts” on, Nishioka also said. Firms said they remain profitable as long as the yen trades at 92.90 per dollar or weaker, according to the Cabinet Office’s annual report released in February.

‘Bold’ Pledge

“Investors were starting to doubt the government’s commitment to its pledge that it would take bold action,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. Kan and Noda in recent weeks repeatedly said that Japan was ready to take “bold” measures to stem the currency.

U.S. Treasury spokeswoman Natalie Wyeth declined to comment on Japan’s announcement when reached by telephone. China’s Ministry of Commerce also declined to comment.

For China, Japan’s decision is a “favorable development,” said Tomo Kinoshita, co-head of Asia Economic Research at Nomura Holdings Inc. in Hong Kong. China has limited gains of its own currency to less than 2 percent since ending a two-year peg to the dollar in June.

U.S. lawmakers have criticized China’s currency policy for providing a subsidy to the nation’s exporters. The House Ways and Means Committee is scheduled to hold a hearing on the subject today in Washington.

Record Sales

Japan hadn’t intervened to sell yen in the foreign-exchange market since 2004, when the yen was around 109 per dollar. The Bank of Japan, acting on behest of the Ministry of Finance, sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.

Noda didn’t say how much was used in today’s action, while that figure will be released at a later date.

“We can’t overlook these movements that could have a negative effect on the stability of the economy and financial markets,” Noda said. “We conducted intervention to contain excessive movements in the currency market. We will continue to watch developments in the market carefully and we will take bold actions including further intervention if necessary.”

Bank of Japan Governor Masaaki Shirakawa said in a statement that the action should “contribute to a stable foreign exchange-rate formation.”

Until now, the government has pressed the Bank of Japan to step up liquidity injections to help address the gains in the yen. The central bank last month increased a credit program by 10 trillion yen ($119 billion) after an emergency meeting. The step had little impact on the currency.

Business Calls

Top business executives have been calling for government action to stem the yen’s rise.

“We want verbal or actual intervention if the yen appreciates more than the current level,” Hiromasa Yonekura, head of Japan’s Keidanren business lobby, said at a Sept. 13 press conference. “Rapid change should be managed,” Hiroaki Nakanishi, president of Hitachi Ltd., said this week in Tokyo.

Some analysts have said that official action by Japan might not weaken the yen for long unless it’s conducted together with overseas authorities. Kan said last week in a debate with Ozawa that getting international cooperation to halt the yen’s rise is “difficult.”

U.S. Treasury Secretary Timothy F. Geithner declined to comment about the prospects for currency intervention in an interview last week, instead saying that Japanese officials should do what they can to help their economy grow.

“They’re working through some difficult problems,” Geithner said on Bloomberg Television. “My view is they should be focusing like we are on how to make sure they’re reinforcing recovery in Japan and doing things that are going to help.”

Recent Japanese data have pointed to the expansion losing momentum. The government yesterday revised its July industrial output figures to show that output fell rather than increased from a month earlier. Japan’s economy expanded at a 1.5 percent annual rate in the second quarter, less than half the pace of the previous period, and consumer confidence slid to a four- month low in August.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg

Noda Says `Difficult' for Japan to Win Coordination on Yen Intervention

By Keiko Ujikane - Sep 4, 2010 12:20 PM GMT+0500

Japanese Finance Minister Yoshihiko Noda said it would be “difficult” to gain support for international coordination to halt the yen’s gains, signalling any sales of the nation’s currency would have to be unilateral.

“This is about what options we have on the assumption coordination would be difficult,” Noda said on a TV Tokyo program today. “Our statements on taking ‘bold action when necessary’ cover everything.”

The yen’s advance to a 15-year high against the dollar threatens earnings at companies from Sony Corp. to Toyota Motor Corp. Sony Chief Executive Officer Howard Stringer said this week that the currency’s appreciation is a “huge handicap for us.” About half of Japan’s manufacturers say the yen’s recent gains are hurting their sales, according to a survey published yesterday by credit research agency Teikoku Data Ltd.

The currency’s advance, which threatens to stunt Japan’s trade-dependent economic recovery, has featured in Prime Minister Naoto Kan’s battle to fend off a challenge to his leadership of the ruling Democratic Party of Japan.

Ichiro Ozawa, former deputy leader of the DPJ and Kan’s opponent in party contest, said this week he would take “every measure,” including intervention, to keep the yen from rising. Kan said last week the government is “ready when necessary to take bold measures” in the currency market.

‘A Matter of Deciding’

“What they meant was the same,” Noda said today. “Ultimately, it’s a matter of deciding whether or not to intervene.”

Japan hasn’t stepped into the foreign-exchange market since 2004, when the yen was around 109 per dollar, and may not succeed in curbing the yen’s gains on its own.

While coordinated intervention helped set a floor for the euro in 2000 and the dollar in 1995, solo sales of yen in 2003 and early 2004 failed to arrest the advance.

Developed economies abroad are weaker than when Japan last intervened, and are themselves looking to boost exports, making it tougher for Japan to go it alone.

Japan views probable U.S. opposition to currency intervention as an obstacle to selling the yen, according to three Japanese government officials.

Sales without U.S. backing would be a challenge, the officials said on condition of anonymity because the government discussions are private.

Two of them also said volatility, rather than the current level, would be a more likely trigger for an end to the policy of refraining from sales of the currency, which last week hit a 15-year high at 83.60 against the dollar.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

AUD/USD Forecast

The price action on the first day of the month is too fast. We have seen the major gain in the pair. We believe that the price will get retrace up to 0.9000 (21 DMA) before making a further upside move. For a small trade short 0.9110 cover it at 0.9060. which is a pivot point for the current day.

Mr. Yen' Says Japan Can't Stem Currency's Rise as U.S. Economy Falters

Mr. Yen' Says Japan Can't Stem Currency's Rise as U.S. Economy Falters
By Yasuhiko Seki - Aug 15, 2010 7:01 PM GMT+0400

Eisuke Sakakibara said the yen may match its April 1995 peak of 79.75 to the dollar. Photographer: Haruyoshi Yamaguchi/Bloomberg

Japan’s yen, the best performer among major currencies this year with a 7.9 percent gain against the dollar, may surge further as concern grows that U.S. efforts to boost economic growth may fail.

“What we are seeing is not appreciation of the yen but weakness of the dollar, reflecting concerns that the U.S. economy may falter,” Eisuke Sakakibara, formerly Japan’s top currency official, said yesterday on the Fuji television network. “There is a chance the yen will reach an all-time high and stay at that level for the time being.”

The Japanese government has yet to formulate strategy for stemming a yen surge that threatens the earnings of exporters including Toyota Motor Corp., Honda Motor Co. and Canon Inc. A report today probably will show the nation’s economy grew at the slowest pace in three quarters in the period ended June 30, economists surveyed by Bloomberg News forecast.

The yen reached 84.73 to the dollar on Aug. 11, a high since July 1995. Sakakibara -- known as “Mr. Yen” for his efforts to influence exchange rates through verbal and actual currency market intervention while at the Ministry of Finance in 1997-1999 -- said the currency may match its April 1995 peak of 79.75.

‘Feel the Pinch’

“Japanese companies will feel the pinch of a stronger yen and a weakness in share prices around the end of this year,” Sakakibara said. The Nikkei 225 Stock Average fell to a year-to- date low of 9,065.94 on Aug. 12.

Canon, the world’s second-largest printer maker loses about 6.8 billion yen of annual operating profit for every 1 yen gain in its value against the dollar and 4.1 billion yen of profit for each 1 yen rise versus the euro, the company said in April.

Sakakibara spoke after Finance Minister Yoshihiko Noda last week refrained from outlining steps to slow the yen’s rise and the Bank of Japan maintained its policy guidance.

“We will monitor economic conditions carefully and respond appropriately,” Noda said in an unscheduled press conference in Tokyo on Aug. 12. Asked whether action could include currency intervention, he declined to elaborate.

Noda and central bank Governor Masaaki Shirakawa said on Aug. 12 they were closely watching the currency, comments investors said indicate preparedness to curb the yen’s gains to protect the nation’s economic recovery.

Poised to Move?

More than a third of Japan’s margin traders think policy makers will intervene to weaken the yen if it strengthens past the 15-year high reached this week, a survey by Gaitame.com Research Institute Ltd. showed.

Lawmakers from Japan’s ruling party last week urged Prime Minister Naoto Kan to consider intervening in the currency market for the first time since 2004. They also called on the Bank of Japan to “engage in large-scale monetary easing.”

Kan and Shirakawa may meet this week to discuss measures to address the yen’s strength, the Asahi newspaper reported on Aug. 13. Kan said he’s “concerned” about the yen’s recent appreciation, Kyodo News reported on Aug. 14.

“Investors know that the Japanese government can’t come up with decisive measures that can stem the appreciation of the yen,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey.

Japan hasn’t intervened in the currency market since March 2004, when the yen was around 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($172 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. The currency ended 2004 at 102.63 to the dollar.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

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