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G7 avoid talk of Yen intervention
While many topics were mooted at last weekend’s G7 summit, there was only one subjected that forex traders cared about: whether the world’s developed nations would publicly urge Japan to lift the value of the Yen. Unfortunately, the only reference to the Japanese Yen at the meeting was a comment that suggested the Yen was undervalued and should more closely reflect economic fundamentals. Whether this will actually translate into a stronger Yen remains to be seen. However, most analysts do not expect Japan will take any steps to appreciate the Yen unless the country is pressured to do so. Reuters reports:
Some traders were also disappointed that the G7 dropped the annex from the April meeting's statement calling explicitly for Asian currencies to appreciate.
Read More: Yen slides back towards all-time lows vs euro
FOREX-Yen slides back towards all-time lows vs euro
http://today.reuters.com
By Eric Burroughs
TOKYO, Sept 19 (Reuters) - The yen slipped towards all-time lows against the euro on Tuesday after Japanese Finance Minister Sadakazu Tanigaki repeated that the yen's weakness versus the single currency was not specifically discussed at the G7 meeting.
In seemingly coordinated comments after finance ministers from the Group of Seven powers met over the weekend, Tanigaki and European officials seemed to back a strong yen by saying the currency should reflect Japan's solid economic recovery.
But the yen failed to sustain gains afterwards and slid to a five-month low against the dollar, with Tanigaki's remarks on Tuesday a reminder that officials were highly unlikely to back up their words with intervention, analysts said.
"Tanigaki's comment convinced the market that Europe and Japan are very unlikely to take coordinated action to lower euro/yen," said Toru Umemoto, chief forex strategist for Japan at Barclays Capital in Tokyo.
Some traders were also disappointed that the G7 dropped the annex from the April meeting's statement calling explicitly for Asian currencies to appreciate.
The yen is sometimes traded as a proxy for Asian currencies and the tightly controlled Chinese yuan.
The dollar pulled back from seven-week highs against the euro after another array of comments from European Central Bank officials signalling that interest rates are poised to rise further, possibly as high as 4 percent next year.
Rates remain the dominant theme, with investors widely selling low-yielding currencies like the yen and Swiss franc in favour of those offering higher yields in the carry trade.
"Despite chatter suggesting yen weakness from this weekend's G7 summit, the theme of carry trades wins the day," said currency strategists at Morgan Stanley in a note to clients.
The demand for yield has driven the New Zealand dollar, which offers the highest rates in the industrialised world at 7.25 percent, to 6-1/2-month highs versus the dollar and pushed the Swiss franc to 6-1/2-year lows against the euro.
The euro climbed to 150.10 yen
The dollar inched up to 117.95 yen
The euro climbed to $1.2720
Market players were keeping an eye out for any more official remarks on currencies around the ongoing meetings of the International Monetary Fund and World Bank in Singapore.
U.S. Treasury Secretary Henry Paulson also begins his first official trip to China.
This week's big event is the Federal Reserve's policy meeting on Wednesday for clues on the U.S. rate outlook. The Fed is widely expected to stand pat at 5.25 percent but keep a bias toward lifting rates further if inflation stays elevated.
By contrast, ECB officials have kept up their talk of being vigilant in tightening credit enough to keep inflation pressures contained.
One senior euro zone monetary source told Reuters that rates will likely reach 4 percent next year if growth stays solid as expected. Rate futures are pricing in about an 80 percent chance of a 3.75 percent euro zone rate by March.
Data on Monday showing a weak $32.9 billion of capital inflows to the United States in July, the lowest in 14 months, and a surprisingly big $218.4 billion U.S. current account deficit in the second quarter did little to dent the dollar.
While highlighting the imbalances in the global economy and the big U.S. reliance on foreign capital to cover its deficits, investors have become less fearful of such imbalances leading to a disorderly dollar decline
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