LONDON, Nov 18: The yen came under pressure on Monday as worries over the potential economic impact of Japanese authorities’ attempts to clean up the country’s ailing financial system sent stocks spiralling lower in Tokyo.
The dollar rose to 121.15 yen from 120.43 late on Friday in New York. The single European currency was steady at $1.0094 from 1.0096 on Friday.
The yen struggled after the Nikkei 225 benchmark Japanese share index sank 1.85 per cent to within a whisker of last week’s 19-year low point.
Analysts said stocks were rattled by talk of a possible nationalization of some of Japan’s weaker banks and concerns that the authorities’ plans to clean up the problem of non-performing loans within the country’s financial system will inflict more pain on the economy in the near term.
It’s quite clear now that there’s no foreign interest in Japanese equities, said ABN Amro currency strategist Rob Hayward.
Talk of nationalisation of some of the banks has been circulating over the weekend.
This is something which would help keep foreign investors from investing in Japan and probably encourages the continued outflow of capital in terms of Japanese investors buying overseas bonds because they don’t have the confidence at home, Hayward told AFP.
He said the market was looking to test technical support for the yen at the 121.40 level against the dollar.
If it breaks through there there’s a danger the correction becomes more substantial and I think the risk is we will do that, Hayward said.
Neil Mackinnon, chief economist of financial firm ECU, agreed, predicting that if the yen failed to hold above this level it was likely to head towards 125-126 to the dollar level.
Elsewhere, the euro was steady against the dollar after official figures showed euro-zone inflation rose to 2.3 per cent in October from a year earlier, revised up from 2.2 per cent previously.
Although that left inflation above the European Central Bank (ECB)’s 2.0-per cent ceiling, analysts said the central bank remains strongly fancied to cut rates on December 5.
All the comments coming from the (ECB) officials are that inflation is not so much of a problem, said Hayward.
He said the prospect that inflation would start to decline in November would give the ECB an excuse to cut rates by half a point in next month.
The euro was changing hands at $1.0094 from 1.0096 late on Friday in New York, 122.24 yen (121.61), 0.6381 pounds (0.6388) and 1.4668 Swiss francs (1.4658).
The dollar was being quoted at 121.13 yen (120.43) and 1.4536 Swiss francs (1.4518). The pound was at 1.5815 dollars (1.5796), 191.59 yen (190.30) and 2.2991 Swiss francs (2.2937).
On the London Bullion Market, the price of an ounce of gold rose to $320.55 from 318.6 late on Friday.—AFP