Japan's finance and economic ministers piled pressure on the Bank of Japan on Thursday to consider easing policy further, as the yen climbs back to levels that led to Tokyo to intervene heavily in currency markets last year to protect its export-reliant economy.
BOJ Deputy Governor Hirohide Yamaguchi said he saw no need to ease policy right away, but the central bank could face growing calls to offer more monetary stimulus to help exporters through any prolonged slump, even though it has limited options remaining to support the faltering economy.
"Yen buying has strengthened, led by short-term and speculative moves on the back of expectations for low interest rates in the U.S. until 2014," Finance Minister Jun Azumi told lawmakers.
"I would like the BOJ to take account of economic conditions and various factors in deciding policy, including quantitative easing."
Economics Minister Motohisa Furukawa also called on the central bank to ensure that real interest rates remain low, as the Federal Reserve's commitment to keep its nominal benchmark rate near zero for nearly three more years pushes the dollar lower against the yen.
Under the BOJ's initial round of quantitative easing, a technique it pioneered, it flooded the financial system with cash from 2001 to 2006 by targeting the size of current account deposits that commercial banks park at the central bank.
Read more at Reuters.
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We just released the October rankings for the top currencies performance against the US dollar for October.
The dollar didn't do so well last month. Every currency, except the Indian rupee, gained against it. The Australian dollar made the most significant gains (6.88%) while the Brazilian real enjoyed the biggest change in rank from last (in September) to second (in October).
See the October rankings.
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Dollar
The dollar remained the markets’ currency of the week as most investors were seen to favor the greenback in times of uncertainty over other safe-haven currencies such as the Japanese yen, the Swiss franc, and gold. The markets were also comforted by the G7 meeting held last weekend that pressed on global leaders to refrain from policies that would fuel the revival of the feared currency wars, which left investors in despair.
Global stocks recorded their fourth straight day of gains on Friday, though they are off session highs.
Attention will shift to the US early next week, with the Federal Reserve set to hold its September policy meeting on Tuesday and Wednesday. Many investors expect the US central bank’s Federal Open Market Committee to take some form of intervention in the bond market to stimulate the sluggish economy.
During the week, a risk-asset bounce came in the face of more disappointing data on the health of the US economy. The September sentiment survey released on Friday shows consumers still pretty discouraged. Wednesday’s soft retail sales figures were followed by Thursday’s higher than forecast weekly initial jobless claims, weak surveys of business activity from the New York and Philly Feds, and stronger than expected inflation data for August, which some deem could restrict the US Federal Reserve in applying further support.
Euro
The euro headed for its best week in eight against the dollar on Friday but the gains appeared to be running out of steam as investors deemed policymakers’ latest action insufficient to solve Europe’s debt crisis. Gains in the euro earlier in the week were fueled by the European Central Bank’s announcement on Thursday of joint action with other central banks to offer three-month dollar loans to banks in order to ease pressure in the money market. But the euro’s rally faded on Friday as traders refocused on the risk of an eventual debt default by Greece.
US Treasury secretary Timothy Geithner told Europe’s leaders to stop bickering and take control of the debt crisis that has brought “catastrophic risk” to financial markets. In a blunt warning that reflected Washington’s growing concern, Geithner urged European leaders to halt a months-long clash with the ECB and argued that the European Union’s growing reliance on foreign lenders would imperil the bloc’s ability to control its own destiny.
Geithner’s comments came as the Europe’s finance ministers agreed to withhold an €8bn loan payment to Greece, a move that could leave Athens scrambling to satisfy its lenders before it runs out of cash.
Range for previous week: $1.3499-$1.4275
Range for this week: $1.3850-$1.4020
Sterling
Sterling reversed early losses versus the dollar on Friday as investors booked profits on short positions, but it remained within sight of an eight-month low, determined by signs Bank of England officials were heading toward more monetary stimulus. The pound rose against a broadly weaker euro which fell in light trade, with traders unconvinced that a meeting of EU finance ministers would result in more aggressive action on the region’s debt crisis.
Sterling recovered from a session low of $1.5745, hit on Friday, after BoE deputy governor Charlie Bean said in a newspaper interview that more quantitative easing would be effective if more stimulus was needed. Many argue sterling will remain under selling pressure given growing speculation of more quantitative easing which would be sterling-negative as it would flood the market with more pounds and the ongoing risks to the UK economy from the euro zone debt crisis.
Comments from British Business Secretary Vince Cable on the potential need for more quantitative easing to revive Britain’s fragile economy echoed similar suggestions from BoE policymaker Martin Weale on Thursday, and kept pressure back on the pound.
Range for previous week: $1.5704-$1.6186
Range for this week: $1.5650 - $1.6023
Yen
Tax hikes worth of $146bn were proposed by Japan’s government on Friday to help fund rebuilding from the devastating March 11 earthquake and tsunami. The heavily indebted government faces a challenging act to secure funding for Japan’s biggest rebuilding effort since the aftermath of World War II.
To limit the tax burden, Tokyo is seeking to sell stakes in Japan Tobacco Inc and unlisted Tokyo Metro to fund rebuilding in areas devastated by the magnitude 9.0 quake and tsunami earlier this year. Since before the March disaster, the Democrat-led government has been seeking a cut in the corporate tax rate, one of the highest among industrialised countries at around 40%, to promote domestic investment.
With a rising yen threatening to derail the economy’s recovery from a recession triggered by the March disaster, a ruling party policy panel proposed creating a fund to mitigate the strong currency’s impact as one of its recommendations for the third extra budget.
Range for previous week: ¥76.51-¥77.85
Range for this week: ¥76.00-¥77.00
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