NEW YORK, Oct 12: Investors pushed the yen lower against the dollar and the euro on Friday, unimpressed by the Bank of Japan’s plan to shore up the troubled Japanese banking sector, stifled by $424 billion in non-performing loans.
A strong gain on Wall Street for the second consecutive day supported the greenback, but it failed to spark much excitement amid tepid US economic data.
The BOJ said it would spend two trillion yen ($16.2 billion) to buy shares from more than 10 major banks through next September in an effort to bolster the sector, which is critical to pulling the Japanese economy out of 10 years of flat growth.
It seems that the market really is starting to see a building case for a more aggressive approach, and that is being viewed as a negative for the yen because we are worried about the near-term economic impact of that, said Lisa Finstrom, senior currency analyst at Salomon Smith Barney.
But having said that, really, the yen isn’t that soft, she added. I mean, it got to its recent lows, but that’s it.
The yen fell to a 3-year low against the euro and neared a 4-month low versus the dollar before retracing its losses. In late afternoon, it traded versus the euro at 122.45 yen, down about 0.43 per cent from Thursday. Against the dollar, the Japanese currency was at 124.02 yen, off 0.34 per cent.
Japan is so far buried under a pile of nonperforming loans that the market is still very skeptical that a crisis can be averted, said Andrew Delano, currency strategist at IDEAGlobal in New York.
Finstrom and other analysts foresee more narrow trading in the near future until there are clearer signs of progress in Japan, the United States and the euro sector economy.
US economic reports on Friday showed continued weakness, with the University of Michigan’s preliminary consumer sentiment survey for October indicating the lowest reading in nine years. In addition, September retail sales fell more than expected, down 1.2 per cent, compared with a downwardly revised 0.6 per cent gain in August.
The only positive US economic news showed inflation at the wholesale level was steady last month.
Despite the less-than-encouraging economic data, all three of Wall Street’s major stock indexes climbed higher on Friday. The blue chip Dow Jones industrial average, the broader S&P 500 Index the tech-heavy Nasdaq index all gained around 4 per cent.
When you’re seeing the kinds of moves we’re seeing on the equity and the fixed income markets, the dollar’s actually pretty quiet, said Salomon Smith Barney’s Finstrom.
The euro and the traditional safe-haven Swiss franc were little changed against the dollar after the US Congress granted President George W. Bush the authorization he sought to wage war if necessary to disarm Iraq.
Analysts said the stage was set for a showdown next week in the UN Security Council over whether it also will threaten the use of force to compel Iraqi President Saddam Hussein to disarm.
I think it’s another step toward war. It seems to be a gradual but relentless and almost inevitable process, said Rob Hayward, senior foreign exchange strategist at ABN AMRO.
The euro edged up to 98.71 cents, a 0.11 per cent gain, versus the dollar, while the Swiss franc was up 0.18 per cent against the dollar, at 1.4818 francs per dollar.
In yen options trade, dealers noted the expiration of barrier options, with strikes at 125 yen in New York trading. But they said new longer-dated strikes for barrier options have emerged above that level and may provide resistance as option holders sell dollars to keep their options from being knocked out.—Reuters