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Japan Reaffirms U.S. Alliance After Upper House Loss (Update2)
By Keiichi Yamamura and Stuart Biggs
Aug. 3 (Bloomberg) -- Japan reaffirmed its foreign policy and support for the alliance with the U.S. to Deputy Secretary of State John Negroponte, the Japanese government's top spokesman Yasuhisa Shiozaki said.
Shiozaki met Negroponte today and told him Japan's foreign policy wouldn't change, after the government lost control of the Upper House of Parliament in elections on July 29.
``In my meeting with Negroponte, I told him that the government of Shinzo Abe would continue to work to strengthen the U.S.-Japan alliance,'' Shiozaki said. ``I told him that the Upper House election notwithstanding, the foreign policies of the Abe administration would basically remain unchanged.''
The Democratic Party of Japan now has the most seats in the Upper House and will oppose Prime Minister Abe's plans to allow Japan's navy to continue to support the U.S. in the Indian Ocean for the war in Afghanistan, the party's leader Ichiro Ozawa said on July 31.
While the LDP continues to hold a two-thirds majority of the Lower House of Japan's Parliament, it will now have to negotiate on legislation with the DPJ-controlled Upper House. The anti- terrorism law that provides for the Japanese navy's operations comes up for renewal in November.
``To interrupt these operations probably would negatively affect our efforts to prevent terrorism and prevent the passage of undesirable products and people through that area,'' Negroponte said at a press conference in Tokyo today.
Seeking Understanding
Ozawa refused to meet U.S. Ambassador Thomas Schieffer to discuss the extension of the legislation, the Asahi News said yesterday, citing unidentified people familiar with the matter.
Schieffer denied the DPJ had refused a meeting. U.S. Embassy Spokesman Jeffrey Hill said Schieffer will meet Ozawa next week.
``Abe had said he would seek the understanding of the opposition parties with respect to the special anti-terrorism law, because it's a basis through which Japan responds to the expectations of the rest of the world,'' Shiozaki said.
Defense Minister Yuriko Koike asked Negroponte for the U.S. to help Japan in choosing its new fighter aircraft, the ministry said. She met Negroponte after Shiozaki.
Japan is expected to choose a replacement for its F-4 Phantom fighter next year.
The government is considering buying the F-22 Raptor, built by a Lockheed Martin Corp.-led consortium, Boeing Co.'s F-15 and F-18 and Eurofighter GmbH's Typhoon, the Financial Times reported on May 15.
A U.S. House committee last week decided to maintain a prohibition on exports of the Raptor.
To contact the reporters on this story: Keiichi Yamamura in Tokyo at kyamamura@bloomberg.net .
Last Updated: August 3, 2007 05:55 EDTFriday, August 3, 2007
Yen Falls Versus Euro on Increasing Demand for Riskier Assets
By Kim-Mai Cutler 
A woman arranges Japanese currency.
Aug. 2 (Bloomberg) -- The yen declined against the 16 most- actively traded currencies as demand for riskier assets funded by loans in Japan increased.
The Brazilian real gained 1.2 percent versus the yen, which declined for a second day versus the dollar and euro. Investors sold the Japanese currency to buy assets in countries with higher interest rates in a practice known as the carry trade. Japan's 0.5 percent borrowing costs are the lowest among major economies.
``There has been a pretty distinct appetite for putting back on high-yielding trades and selling low-yielding currencies like the yen,'' said Richard Franulovich, a senior currency strategist in New York at Westpac Banking Corp.
The yen declined 0.3 percent to 163.09 per euro at 2:38 p.m. in New York. The Japanese currency traded at 119.13 per dollar, from 118.96 yesterday.
The yen declined as most U.S. stocks gained after consumer and media companies' earnings beat analysts' estimates.
``The rise of U.S. stocks is somewhat supportive of risk appetite, and we've seen the yen come off its rally as risk aversion eases,'' said Omer Esiner, an analyst with currency- trading company Ruesch International Inc. in Washington.
The yen advanced 2.7 percent last month versus the euro, the most since February 2006, and 3.7 percent against the dollar, the biggest increase since October 2004.
Stocks Gain
The Dow Jones Industrial Average climbed 0.2 percent to 13,389.85.
The carry trade has weakened the yen 3.7 percent this year against the euro as investors took advantage of Japan's borrowing costs. Japan's benchmark interest rate compares with 5.75 percent in the U.K., 5.25 percent in the U.S. and 8.25 percent in New Zealand.
New Zealand's dollar has increased 28.2 percent against the yen over the past 12 months.
The dollar weakened 0.2 percent against the euro on speculation a government report tomorrow will show U.S. companies added fewer jobs in July. The Labor Department may say the number of non-farm jobs rose by 127,000, down from 132,000 a month earlier, a Bloomberg News survey of economists shows. The jobless rate is forecast to stay at 4.5 percent.
``If the number's a disaster for the U.S. economy, it would cause everything to rally against the dollar,'' said Greg Anderson, senior currency strategist at ABN Amro Bank NV in Chicago.
A private report based on payroll data yesterday showed companies in the U.S. added the smallest number of jobs in four years. ADP Employer Services said companies added 48,000 jobs in July, less than half the 100,000 gain forecast according to the median estimate of 20 economists surveyed by Bloomberg News.
ECB Holds Rates
European Central Bank President Jean-Claude Trichet signaled interest rates will rise in September from a six-year high.
Trichet said ``strong vigilance'' is needed to guard against inflation, indicating the benchmark will rise from 4 percent.
``This puts a floor on the euro-dollar,'' said Matthew Kassel, director of proprietary trading in New York at ING Financial Markets LLC. ``It puts September on for the next rate hike.''
The euro traded at $1.3688, from $1.3667 yesterday.
``Rising oil prices, emerging capacity constraints and the potential for stronger wage dynamics imply upside risks to price stability,'' Trichet said at a press briefing in Frankfurt today after the bank left interest rates unchanged, as forecast. He has used the term ``vigilance'' in past statements to indicate a rate increase is imminent.
The currency may extend this year's 3.7 percent advance against the dollar as interest-rate futures show investors are betting the ECB will lift rates at least once more this year.
The implied yield on the December Euribor futures contracts rose to 4.51 percent from 4.48 percent yesterday. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB key rate since 1999.
To contact the reporter on this story: Kim-Mai Cutler in New York at kcutler@bloomberg.net
Last Updated: August 2, 2007 14:40 EDTSunday, July 29, 2007
BOJ Less Likely to Raise Rates as Stocks, Prices Fall (Update2)
By Mayumi OtsumaJuly 27 (Bloomberg) -- The Bank of Japan is less likely to raise interest rates in August after global stocks slumped and the nation's consumer prices fell for a fifth month.
Investors see a 48 percent likelihood of a rate increase next month, down from 66 percent yesterday, according to Credit Suisse Group calculations based on the exchange of interest payments. Consumer prices excluding fresh food fell 0.1 percent in June from a year earlier, the government said in Tokyo today.
Global stocks slid on concern a worsening U.S. housing slump will slow growth in the world's biggest economy. Bank of Japan Governor Toshihiko Fukui maintained this month that prices will resume rising, though he also said policy makers must be confident economic growth will be sustained before raising rates.
``The heightened concern over systemic risk in the U.S. may make it difficult for the bank to move next month,'' said Eishi Yokoyama, an economist at AIG Global Investment Corp. in Tokyo. ``The price report won't alter the bank's expectations that prices are going to rise in coming months.''
The Nikkei 225 Stock Average slid the most in more than four months. The Dow Jones Industrial Average yesterday sank the most since February and the FTSE 100's biggest drop in four years led European declines.
Japan's retail sales unexpectedly fell 0.4 percent in June, the Trade Ministry said today, as higher taxes, lower wages and a furor over lost pension records weighed on consumer sentiment.
Weak Data
``Given today's weak CPI and retail data as well as the stock decline in the U.S., there are more factors mounting against an August rate increase,'' said Hiromichi Shirakawa, chief economist at Credit Suisse Group in Tokyo. Shirakawa, a former central bank official, said he put the chances of an August rate increase at ``less than 50 percent.''
The yen weakened to 119.12 per dollar at 12:36 p.m. in Tokyo from 118.68 in New York late yesterday. The yield on Japan's 10-year bond fell 5.5 basis points to 1.8 percent, the lowest in seven weeks. The Nikkei tumbled 2 percent.
Concern is mounting that the U.S. housing slump will spread to the rest of the economy, crimping demand in Japan's biggest export market. Sales of new homes in the U.S. fell 6.6 percent last month, the most since January, a report showed yesterday.
``Housing market data has continued to be unimpressive,'' Tadao Noda, a Bank of Japan policy board member, said in a speech yesterday. ``Some have indicated the recovery in the housing market could take more time than initially thought so we need to continue to keep a close watch on this issue.''
Key Rate
The Bank of Japan has kept the key overnight lending rate at 0.5 percent, the lowest among major economies, since February. At the Aug. 22-23 meeting, policy makers will be able to examine the impact of July 29's upper house election, second-quarter gross domestic product and data on output and consumer spending.
``The Bank of Japan is very fortunate because it still has a bit less than one month before the next board meeting,'' said Chotaro Morita, chief debt strategist at Deutsche Securities Ltd. in Tokyo. Financial markets may settle down, allowing the bank to ``pursue its goal of raising rates gradually,'' Morita said.
Industrial production rose for the first time in four months in June, a government report will probably show on July 30, according to economists. Household spending is expected to climb for a sixth month.
Japan's economy grew an annual 1.1 percent last quarter, a third of the pace of the 3.3 percent expansion in the first three months, according to the median estimate of 14 economists. The gross domestic product report is due for release Aug. 13.
Tokyo Prices
Tokyo's core prices, seen as an indicator of the nationwide consumer price index, fell 0.1 percent in July from a year ago, the statistics bureau said in today's report. The drop in prices nationwide and in the capital matched economists' expectations.
Consumer prices in Japan have failed to rise this year, after posting gains in eight months of last year. Those increases led to speculation that the economy was emerging from more than seven years of deflation that discouraged investment and consumer spending.
Nationwide core prices may fall as much as 0.2 percent in August and September because crude oil costs were near records in those months in 2006, said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo.
Competition among mobile-phone operators is also exerting downward pressure on prices. KDDI Corp., Japan's second-biggest mobile-phone carrier, said last week that it will cut monthly fees by half, matching a move by larger rival NTT DoCoMo Inc.
Mobile Phones
Given the mobile-phone prices, the time of the next consumer-price increase ``may be delayed to December from November,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management in Tokyo.
Still, there are also budding signs of inflation, as companies gradually pass rising costs of oil and raw materials onto retail prices. Rengo Co., an Osaka-based paper maker, this week said it will raise prices of cardboard and other paper by at least 15 percent from Sept. 1 to meet higher costs.
Inflationary expectations are increasing amid a surge in gasoline and food prices, according to a central bank survey of consumers. Some 72 percent of consumers expect prices to rise this year, compared with 59 percent in the previous quarter, the bank said in the quarterly report on July 18.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
Last Updated: July 26, 2007 23:42 EDTMonday, July 23, 2007
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Saturday, July 7, 2007
Tokyo Mom and Pop Traders Pass Chicago in Yen Sales (Update3)
By Kosuke Goto
July 6 (Bloomberg) -- Yen sales by Japanese mom and pop investors this week exceeded professional traders' bets against the currency on the Chicago Mercantile Exchange.
Net short positions on the yen against the dollar, or wagers Japan's currency will fall, reached $1.1 billion among traders using borrowed funds on July 4, according to Tokyo Financial Exchange. Based on estimates of the exchange's market share, the total position of Japanese individual investors is about $19.15 billion, compared with a record $19.07 billion of bets by traders on Chicago's market.
``Retail investors are piling up yen short positions,'' said Tomoko Fujii, head of Japan economics and strategy at Bank of America N.A. in Tokyo. ``It highlights the popularity of currency investment among Japanese individuals, which overseas speculators are increasingly paying attention to.''
Japanese pensioners, businessmen and housewives are taking advantage of the Bank of Japan's 0.5 percent benchmark rate to borrow yen to buy higher-yielding currencies in New Zealand, the U.K. and Australia. The growing popularity of so-called carry trades has added to declines in the yen, which dropped against all of the 16 most-active currencies in the past year.
Japan's currency traded at 123.15 per dollar at 6:30 a.m. in London, down 3.3 percent in 2007. It fell to a record low of 167.46 per euro today. The yen has dropped 13 percent against New Zealand's dollar and 11 percent versus Australia's. New Zealand's benchmark rate is 8 percent and Australia's is 6.25 percent.
Growing Presence
``The yen will fall further due to the growing presence of those Japanese retail investors,'' said Toru Umemoto, chief currency strategist at Barclays Capital in Tokyo. ``Those mom- and-pop investors have invested only 3 percent of their total financial holdings of 1,500 trillion yen in overseas assets. They will invest more.''
The yen may fall to 125 in a month, said Umemoto, the most- accurate yen forecaster last year in Bloomberg surveys.
Futures traders increased short positions, or bets against the yen, to a record 188,077 on June 26, equal to $19.07 billion, figures from the Commodity Futures Trading Commission in Washington showed June 29. The latest figures will be released today.
1 Million Accounts
In Japan, individuals have opened 664,802 margin trading accounts at brokerages that lend money for currency bets, almost double a year ago, according to Tokyo-based Yano Research Institute Ltd., publisher of an annual report on the business. The number may exceed 1 million by the end of March, said Kaz Shirakura, senior researcher at the institute.
Account balances totaled 613 billion yen ($4.99 billion), up 62.2 percent from a year ago, Shirakura said. Leveraging typically makes their positions 10 to 30 times larger, he added.
The Bank of Japan estimates of the Tokyo futures exchange has a market share of 5.8 percent of margin trades. Japanese brokerages, including online trading Web sites, also channel their currency orders through banks, including Deutsche Bank AG.
Japanese individuals are helping to moderate currency swings by betting against professional investors, Bank of Japan board member Kiyohiko Nishimura said this week.
`Housewives of Tokyo'
``The arrival of Japanese households as major investors seems to have affected foreign-exchange markets,'' Nishimura, 54, said in a speech at a meeting at the Brookings Institute in Washington on July 2. ``The gnomes of Zurich were accused in their day of destabilizing markets. The housewives of Tokyo are apparently acting to stabilize them.''
The ``gnomes of Zurich'' was a term used by U.K. politician Harold Wilson to describe financial speculators based in the Swiss city who were speculating against the pound.
Nishimura went on to highlight the risk of households suddenly changing their investment strategies.
``We do not know how far the contrarian strategies of Japanese retail investors can go,'' Nishimura said. ``A sudden change in their behavior is likely to shift the direction and the magnitude of trading in many foreign-exchange markets.''
Bank of Japan Governor Toshihiko Fukui has warned investors against the risks of one-way bets on currencies and said a sudden reversal of such trades could affect financial markets.
When the carry trade collapsed in 1998 following Russia's debt default, the yen jumped 10 percent against the dollar in two days and ended the year 15 percent higher. The biggest challenge to the strategy this year came when Chinese stocks slumped on Feb. 27, prompting fund managers to cut riskier investments and pay back yen loans. The yen rose 2.3 percent in a single day, the biggest gain since July 2005.
Finance Minister Koji Omi last week said it's ``important'' for investors and traders to realize the risk of making one-sided bets. The Group of Seven nations warned about the risk of trading against the yen in meetings in February and April.
To contact the reporter on this story: Kosuke Goto in Tokyo at at kgoto2@bloomberg.net .
Monday, July 2, 2007
Japan's Business Confidence Holds Near Two-Year High (Update5)
By Lily Nonomiya 
Toshihiko Fukui, governor of the Bank of Japan,.
July 2 (Bloomberg) -- Confidence among Japan's largest manufacturers held near a two-year high and companies said they're increasing spending, supporting the central bank's argument for raising interest rates.
The Tankan, Japan's most closely watched business survey, showed sentiment was unchanged at 23 points in June from March and near December's two-year high of 25, the Bank of Japan said in Tokyo today. The result matched the median estimate of 26 economists surveyed by Bloomberg News. A positive number means optimists outnumber pessimists.
Sentiment among service companies held at a 15-year high of 22 points for a third quarter as the export-led expansion created jobs and spurred consumer spending. The report supports expectations the bank will raise its key 0.5 percent overnight rate, the lowest among major economies, as soon as August.
``The survey confirms the healthy sentiment of large companies and solid prospects for the economy,'' said Takehiro Sato, chief economist for Japan at Morgan Stanley in Tokyo. Sato last month brought forward his rate-increase forecast to August.
The yen traded at 122.68 per dollar at 4:42 p.m. in Tokyo compared with 123.09 before the report. The yield on Japan's benchmark 10-year bond rose 2 basis points to 1.885 percent. The Nikkei 225 Stock Average rose 7.94 points to 18,146.30.
The Tankan, which means short-term economic outlook in Japanese, surveyed 10,839 companies from May 28 to June 29, asking them about sales, profit, spending, hiring and confidence.
Rate Increase
Eleven of 17 economists surveyed by Bloomberg last month said the bank will act in August after the government publishes economic growth figures for the second quarter. Others say falling prices and weak production mean Governor Toshihiko Fukui will refrain from proposing a rate increase next month.
Chief government spokesman Yasuhisa Shiozaki said the Tankan shows the economy is recovering steadily. Monetary policy is up to the Bank of Japan, he added.
Large companies said they'd increase capital spending by 7.7 percent in the year ending March 31, less than the 9 percent estimated by economists, though more than the 2.9 percent planned three months ago. Companies boosted investment by 10 percent in 2006, the fastest pace in 16 years.
Prospects for exporters are improving. Concern that the U.S. will lapse into recession has eased and the yen's slide of 4.3 percent against the dollar and 5.7 percent per euro in the past three months bolstered earnings at companies including Canon Inc.
Canon's Profit
Canon, the world's largest maker of digital cameras, posted record earnings in the first quarter, thanks in part to the yen's drop, which accounted for 9 percent of operating profit. Digital camera exports surged 32.6 percent in May, the Tokyo- based Camera & Imaging Products Association said today.
Large manufacturers see the yen trading at an average of 114.4 per dollar for the fiscal year, the Tankan showed. That's little changed from the 114.32 predicted three months ago, even after the currency's decline in the quarter.
Capital spending by large manufacturers is expected to climb 11.2 percent this fiscal year, faster than the 2.5 percent forecast in March, the central bank said.
``Our volume of production is getting better and better,'' said Toshio Maruyama, president of Advantest Corp., the world's biggest maker of memory-chip testers. He cited demand from makers of chips for Apple Inc.'s iPhone and flat-panel televisions ahead of next year's Beijing Olympics.
Labor Shortages
Companies said they were still seeing labor shortages. An index of labor demand among large manufacturers was minus 6 in June, close to March's 15-year high of minus 7. A negative number indicates more companies are short of manpower.
Japan's jobless rate held at 3.8 percent in May, a nine- year low, helping spending by households climb for a fifth month, the longest streak of monthly gains since 2004.
Higher demand at home is encouraging service providers, whose spending has lagged behind manufacturers since 1991, to expand stores and add capacity. Consumer spending and exports drove the economy's 3.3 percent annualized first-quarter growth.
``The good business environment for the manufacturing sector is spreading to the non-manufacturers,'' said Masayuki Kichikawa, a senior economist and currency analyst at Mitsubishi UFJ Securities in Tokyo. The survey result is ``somewhat'' supportive of a rate increase in August, he said.
Takashimaya Co., Japan's largest retailer, plans to spend 26.9 billion yen this year on revamping its stores.
``Service companies are expecting demand to gather momentum and that's prompting them to invest,'' said Naoki Iizuka, an economist at Mizuho Securities Co. in Tokyo.
Price Trends
Some economists say the bank may wait until after August to raise interest rates. Industrial production unexpectedly fell for a third month in May and consumer prices excluding fresh food declined 0.1 percent, a fourth monthly drop. Wages fell for a sixth month, the Labor Ministry said today.
``Given that production and consumer prices reports were weak, we may see the bank wait until after August,'' said Junko Nishioka, an economist at ABN Amro Securities Japan Ltd. ``We're not seeing the recovery spreading to small and medium-sized companies.''
Smaller companies are having a harder time passing on costs amid consumer-price declines, said Yasunari Ueno, chief market economist at Mizuho Securities Co. Sentiment among small manufacturers and service providers both deteriorated, falling to 6 points and minus 7 points respectively. The companies also said they plan to cut spending.
To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net
Wednesday, June 27, 2007
Friday, June 22, 2007
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Thursday, June 14, 2007
Preview – No Interest Rate Hike Expected in the Land of the Rising Sun
The two-day monetary policy meeting of the Bank of Japan is underway. The BOJ is expected to declare its interest rates in the mid Tokyo hours (near 0300 – 0430 GMT) on 15-June. It is widely expected to keep the interest rate (the uncollateralized overnight call rate) unchanged at 0.50%. The last time the BOJ had met was on May 17-18 and had kept rates steady.
The last interest rate change was on 21-Feb-07 when rates by had been raised 25 Bps to 0.50% from the then existing 0.25%. The BOJ is currently in a rates raising cycle starting 14-Jul-06. Rates had been raised by 25 Bps for the first time since 2002 officially ending the BOJ’s “Zero Interest Rate Policy”.
The recent Core CPI (Y/Y) had come in at – 0.1% for April, up from –0.3% in March. The Core Tokyo CPI for May (Y/Y) had come in at 0.0%, unchanged from April. However, the recent growth numbers out of Japan have been encouraging. The Japanese GDP for Jan-Mar 2007 had come in at 0.8%, which translates into an annualized rate of 3.3%, implying that Japanese recovery is well underway.
It is very interesting to watch the behavior of the Japanese Libor rates. The near term 3-month rate has not moved up and is below the March-07 High while the 12-Month Libor rate has moved up sharply, past the March-07 High. This clearly indicates that the markets are expecting unchanged rates from the BOJ for the next few months and then a rate hike later on in the year. The chart of the 3-Month Libor and the 12-Month Libor for 2007 is given below for a better view (see Chart 1).
Japanese Government Bond Yields are rising, in line with the rise in Bond yields globally. The Yield chart (see Chart 2). for the 10-Year JGB in 2007 is given below. The yield has risen from a low of 1.47% in March-07 to 1.98% currently. Note that the BOJ had already hiked in Feb-07. This suggests that the markets are again expecting a hike sometime in 2007.
Most traders might be thinking that since BOJ is expected to hike later on in the year then why is Yen at or near record lows against the EUR and USD. Doesn’t it seem logical that a currency should go up when its Yield goes up? The answer is that Currencies move on Yield Differentials and NOT on Yield themselves. If the market is discounting one rate hike by BOJ while it thinks that US FED or the ECB would hike more than once, then the currency, which is expected to have greater increase in rates, goes up.
With the BOJ very unlikely to raise Interest rate this time around, most of the attention would be on BOJ Governor Fukui’s speech after the meet to search for possible cues as to the official stand on Interest rates.
Technically, USD-JPY is currently in a large uptrend trading at its highest level since June 2002. The next important Resistance comes in at 124.50. On the downside the important short term Support is at 122.30, the level from which the pair broke out a couple of days ago. A “surprise” hint of a rate hike by Fukui could produce a small dip in the pair, towards 122.30 or maybe 121.30.
Technically, EUR-JPY is also in a large uptrend and is currently headed towards 164.60, its record high, which is expected to be tested over the next few days. A move above that (highly possible) would take the pair towards 166.00. On the downside, the short term Support is at 163.10 and then at 162.50. The big long term Support is at 161.10, and buyers are likely to be seen on dips while the larger Support holds.
Trade Wise, Trade Well!
The last interest rate change was on 21-Feb-07 when rates by had been raised 25 Bps to 0.50% from the then existing 0.25%. The BOJ is currently in a rates raising cycle starting 14-Jul-06. Rates had been raised by 25 Bps for the first time since 2002 officially ending the BOJ’s “Zero Interest Rate Policy”.
The recent Core CPI (Y/Y) had come in at – 0.1% for April, up from –0.3% in March. The Core Tokyo CPI for May (Y/Y) had come in at 0.0%, unchanged from April. However, the recent growth numbers out of Japan have been encouraging. The Japanese GDP for Jan-Mar 2007 had come in at 0.8%, which translates into an annualized rate of 3.3%, implying that Japanese recovery is well underway.
It is very interesting to watch the behavior of the Japanese Libor rates. The near term 3-month rate has not moved up and is below the March-07 High while the 12-Month Libor rate has moved up sharply, past the March-07 High. This clearly indicates that the markets are expecting unchanged rates from the BOJ for the next few months and then a rate hike later on in the year. The chart of the 3-Month Libor and the 12-Month Libor for 2007 is given below for a better view (see Chart 1).
Japanese Government Bond Yields are rising, in line with the rise in Bond yields globally. The Yield chart (see Chart 2). for the 10-Year JGB in 2007 is given below. The yield has risen from a low of 1.47% in March-07 to 1.98% currently. Note that the BOJ had already hiked in Feb-07. This suggests that the markets are again expecting a hike sometime in 2007.
Most traders might be thinking that since BOJ is expected to hike later on in the year then why is Yen at or near record lows against the EUR and USD. Doesn’t it seem logical that a currency should go up when its Yield goes up? The answer is that Currencies move on Yield Differentials and NOT on Yield themselves. If the market is discounting one rate hike by BOJ while it thinks that US FED or the ECB would hike more than once, then the currency, which is expected to have greater increase in rates, goes up.
With the BOJ very unlikely to raise Interest rate this time around, most of the attention would be on BOJ Governor Fukui’s speech after the meet to search for possible cues as to the official stand on Interest rates.
Technically, USD-JPY is currently in a large uptrend trading at its highest level since June 2002. The next important Resistance comes in at 124.50. On the downside the important short term Support is at 122.30, the level from which the pair broke out a couple of days ago. A “surprise” hint of a rate hike by Fukui could produce a small dip in the pair, towards 122.30 or maybe 121.30.
Technically, EUR-JPY is also in a large uptrend and is currently headed towards 164.60, its record high, which is expected to be tested over the next few days. A move above that (highly possible) would take the pair towards 166.00. On the downside, the short term Support is at 163.10 and then at 162.50. The big long term Support is at 161.10, and buyers are likely to be seen on dips while the larger Support holds.
Trade Wise, Trade Well!
Tuesday, June 12, 2007
Friday, June 8, 2007
Wednesday, June 6, 2007
Stocks fall sharply after Bernanke’s speech
Fed chief's comments imply no interest rate cut coming
Updated: 5:12 p.m. ET June 5, 2007
NEW YORK - Wall Street skidded lower Tuesday after comments from Federal Reserve Chairman Ben Bernanke and a strong reading on the service sector suggested the central bank has little reason to lower interest rates.
Bernanke’s speech by satellite to an international monetary conference in South Africa Tuesday spurred investors to sell a day after the Dow and Standard & Poor’s 500 index edged up to new highs. Bernanke remarked that the economy will recover from its recent feeble performance, despite a housing slump that he said could drag on the economy for longer than anticipated.
Bernanke’s forecast of rebounding growth, as well as his assessment that inflation is “ebbing” but remains “somewhat elevated,” made it appear unlikely the Fed will lower rates anytime soon, a disappointment for Wall Street. Behind the stock market’s surge, driven primarily by strong takeover activity, has been a backdrop of stable interest rates and the possibility of a rate cut; recently, though, with bond yields creeping up, some investors fear the Fed may alter that climate.
“The market is hoping for slow growth and moderate inflation, and now there’s concern they might have to bump up rates in the second half of the year,” said Jim Herrick, director of equity trading at Baird & Co.
While the Fed chairman’s comments stalled a months-long rally, many analysts have been predicting Wall Street would soon pull back before heading higher later this year. Before Tuesday’s decline, the Dow and the S&P 500 had risen more than 8 percent since the beginning of the year.
A robust report on the service sector from the Institute for Supply Management failed to boost stocks. The ISM’s nonmanufacturing index came in at 59.7 in May, higher than expected and up from April’s reading of 56.0. A reading above 50 indicates expansion in the service sector, a diverse group of industries that represents about 80 percent of U.S. economic activity. Investors want to see growth but worry that if it’s too robust, it could prompt a rate hike.
According to preliminary calculations, the Dow fell 80.86, or 0.59 percent, to 13,595.46, after earlier falling more than 100 points.
Broader indexes also retreated. The Standard & Poor’s 500 index fell 8.23, or 0.53 percent, to 1,530.95, while the Nasdaq composite index shed 7.06, or 0.27 percent, to 2,611.23.
Bonds slipped after Bernanke’s comments and the strong service sector data.
“The good news is he did say this residential real-estate morass won’t leach out into the main economy. The bad news is he’s still beating the drum pretty hawkishly on inflation,” said Jack Ablin, chief investment officer at Harris Private Bank.
The yield on the benchmark 10-year Treasury note rose to 4.98 percent from 4.93 percent late Monday. The 10-year yield is trading at 9-month highs, and appears poised to break through 5 percent, a level not reached since August 2006.
Stocks sold off further after a midday speech by U.S. Treasury Secretary Henry Paulson, who said he has been pressuring China to make its exchange rate more flexible. If the yuan is given the chance to rise in value, it could have a dampening effect on the U.S. dollar.
The dollar fell against other major currencies, while gold prices edged lower.
In takeover news, telecommunications company Avaya Inc. said late Monday it agreed to an $8.2 billion offer by private equity firms Silver Lake and TPG Capital. Avaya rose 31 cents to $17.03.
Retail stocks took a hit after home goods seller Bed Bath & Beyond Inc. late Monday warned its fiscal first-quarter earnings may fall below analyst estimates. The stock lost $2.20, or 5.4 percent, to $38.27.
The biggest decliner among the 30 Dow component companies was DuPont Co., downgraded by Lehman Brothers to an “equal weight” rating from “overweight.” The chemicals company fell 95 cents to $52.24.
In other corporate news, Ryanair Holdings PLC reported a record full-year 2006 profit despite higher fuel prices and tough competition, but made a cautious forecast for 2007. The Irish airline’s U.S. shares fell $1.69, or 4.2 percent, to $38.66.
Google Inc. rose $11.77, or 2.3 percent, to an all-time high of $518.84. The search leader signed an agreement with Salesforce.com Inc. to cooperate on online advertising.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 1.51 billion shares, compared to 1.34 billion on Monday.
The Russell 2000 index of smaller companies was down 6.84, or 0.80 percent, at 848.25.
Crude oil futures for July delivery fell 60 cents to $65.61 a barrel on the New York Mercantile Exchange.
Overseas, China’s benchmark Shanghai Composite Index rebounded 2.6 percent after plummeting 8.3 percent a day earlier. Japan’s Nikkei 225 index rose 0.45 percent. Britain’s FTSE 100 fell 0.47 percent, Germany’s DAX index dropped 0.71 percent, and France’s CAC-40 decreased 0.77 percent.
Monday, June 4, 2007
U.S. Stocks Rise, S&P 500 Climbs Most in Six Weeks; Dell Gains
By Michael Patterson
June 2 (Bloomberg) -- U.S. stocks resumed their record- breaking rally and the Standard and Poor's 500 Index climbed the most in six weeks on takeovers, earnings that topped analysts' estimates and signs that economic growth is accelerating.
Real-estate shares led the S&P 500 to three straight records after Lehman Brothers Holdings Inc. and Tishman Speyer Properties LP agreed to buy U.S. apartment developer Archstone-Smith Trust for $13.5 billion. Dell Inc. and Ciena Corp. pushed a gauge of computer-related shares to the highest since August 2001 after the companies said profit gains were fueled by rising sales.
Better-than-expected first-quarter earnings and more than $1.1 trillion of announced mergers and acquisitions this year helped the S&P 500 eclipse its 2000 peak and lifted the Dow Jones Industrial Average to its 26th all-time high. Reports this week on employment, consumer spending and manufacturing signaled that the U.S. economy is rebounding from the weakest growth in more than four years without fueling inflation.
``What we're really doing is navigating this rather tight road of strong-enough economic growth to support continued earnings gains, but not so strong that inflation becomes a problem,'' said Mark Jordahl, who helps oversee about $73 billion as chief investment officer at First American Funds in Minneapolis.
Economy Watch
The S&P 500 climbed 1.4 percent to 1536.34, the best weekly gain since the period ended April 20. The index completed its best May since 2003 and surpassed its previous record of 1527.46 reached March 24, 2000.
The Dow average rose 1.2 percent to 13,668.11. The Nasdaq Composite Index, which gets more than two-fifths of its value from computer-related shares, jumped 2.2 percent to 2613.92 for its first weekly advance in a month. Exchanges were closed May 28 for the Memorial Day holiday.
The Commerce Department said gross domestic product, the value of all goods and services produced, grew at an annual rate of 0.6 percent in the first quarter, the weakest increase since the last three months of 2002.
Other reports this week suggested last quarter may have been the low point of the economy's expansion.
Employers added 157,000 jobs in May, the Labor Department said, nearly twice the previous month's rate. Economists surveyed by Bloomberg News had expected 132,000. The jobless rate stayed at 4.5 percent, close to a five-year low.
Manufacturing, Fed Minutes
Personal spending rose 0.5 percent in April and the gauge of inflation most closely watched by the Federal Reserve rose 0.1 percent, less than the 0.2 percent gain forecast in a Bloomberg survey.
That left the inflation measure with a gain of 2 percent from April 2006. Fed officials, including Chairman Ben S. Bernanke, have said they'd be comfortable with a 1 percent to 2 percent range.
The Institute for Supply Management's factory index rose to 55 in May, the highest in 13 months, from 54.7 in April.
Minutes released this week from the Fed's rate-setting Open Market Committee showed policy makers expect economic growth to pick up and approach its ``trend rate'' next year.
``The employment numbers looked pretty good -- consumers continue to spend,'' said Hans Olsen, who oversees $2.4 billion as chief investment officer at Bingham Legg Advisers LLC in Boston. ``All told, we're lining up for a very good second quarter earnings season.''
More Takeovers
About $63 billion in announced mergers and acquisitions this week added to this year's record pace of takeovers.
Archstone-Smith surged 11 percent to $61.57. Tishman Speyer, the New York-based real-estate investor, and Lehman agreed to buy Archstone for $60.75 a share, the companies said in a statement.
A gauge of real-estate companies in the S&P 500 rose 6.9 percent. Simon Property Group Inc. gained 6 percent to $108.02. Equity Residential jumped 7 percent to $50.89.
Dow Jones & Co., publisher of the Wall Street Journal, surged 18 percent to $61.20 for the top gain in the S&P 500. The Bancroft family said it will consider other bidders and options for the company while agreeing to meet with Rupert Murdoch's News Corp. to discuss his $60-a-share bid. The Bancrofts' Dow Jones shares give them 64 percent of the votes.
Avaya Inc. rose 18 percent to $16.08 for the second-best gain in the S&P 500. Silver Lake Partners is in talks about a buyout of the world's biggest maker of corporate telephone equipment, according to the Wall Street Journal. Avaya spokesman Jim Finn and Matt Benson, spokesman for Silver Lake, declined to comment.
``There's a liquidity boom out there globally that's putting a floor under markets,'' said Sean Clark, who helps manage $1.3 billion as chief investment officer at Clark Capital Management in Philadelphia. ``We think there's lots of room for stocks to move higher.''
Earnings Top Estimates
Dell jumped 5 percent to $27.30, its highest level since November 2006. First-quarter profit excluding some costs was 36 cents a share, topping the average 27-cent estimate in a Bloomberg survey of analysts. Sales totaled $14.6 billion, compared with the $14.1 billion anticipated by analysts.
The company said it raised average selling prices of its products by 14 percent and slashed procurement costs. Dell also will cut about 8,800 jobs.
Ciena Corp. jumped 16 percent to $34.92. The maker of computer-networking equipment had second-quarter profit and sales that topped analysts' estimates as phone companies including BT Group Plc boosted spending to make their systems faster.
Technology shares in the S&P 500 extended a five-day rally and climbed 2 percent for the second-best performance among 10 industry groups.
About 66 percent of the 483 S&P 500 companies that reported first-quarter results beat analysts' estimates, according to data compiled by Bloomberg. Earnings climbed 11.6 percent on average, more than three times analysts' estimates in March.
Wal-Mart Stores Inc., the world's biggest retailer, rose the most in 19 months after saying it will buy back as much as $15 billion in stock. The buyback equals as much as 7.4 percent of its stock outstanding.
At its annual meeting, the company also said it will build fewer stores than it previously predicted. The shares added 5.5 percent to $49.47 for the best advance in the Dow industrials.
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net .
Last Updated: June 2, 2007 11:46 EDT
June 2 (Bloomberg) -- U.S. stocks resumed their record- breaking rally and the Standard and Poor's 500 Index climbed the most in six weeks on takeovers, earnings that topped analysts' estimates and signs that economic growth is accelerating.
Real-estate shares led the S&P 500 to three straight records after Lehman Brothers Holdings Inc. and Tishman Speyer Properties LP agreed to buy U.S. apartment developer Archstone-Smith Trust for $13.5 billion. Dell Inc. and Ciena Corp. pushed a gauge of computer-related shares to the highest since August 2001 after the companies said profit gains were fueled by rising sales.
Better-than-expected first-quarter earnings and more than $1.1 trillion of announced mergers and acquisitions this year helped the S&P 500 eclipse its 2000 peak and lifted the Dow Jones Industrial Average to its 26th all-time high. Reports this week on employment, consumer spending and manufacturing signaled that the U.S. economy is rebounding from the weakest growth in more than four years without fueling inflation.
``What we're really doing is navigating this rather tight road of strong-enough economic growth to support continued earnings gains, but not so strong that inflation becomes a problem,'' said Mark Jordahl, who helps oversee about $73 billion as chief investment officer at First American Funds in Minneapolis.
Economy Watch
The S&P 500 climbed 1.4 percent to 1536.34, the best weekly gain since the period ended April 20. The index completed its best May since 2003 and surpassed its previous record of 1527.46 reached March 24, 2000.
The Dow average rose 1.2 percent to 13,668.11. The Nasdaq Composite Index, which gets more than two-fifths of its value from computer-related shares, jumped 2.2 percent to 2613.92 for its first weekly advance in a month. Exchanges were closed May 28 for the Memorial Day holiday.
The Commerce Department said gross domestic product, the value of all goods and services produced, grew at an annual rate of 0.6 percent in the first quarter, the weakest increase since the last three months of 2002.
Other reports this week suggested last quarter may have been the low point of the economy's expansion.
Employers added 157,000 jobs in May, the Labor Department said, nearly twice the previous month's rate. Economists surveyed by Bloomberg News had expected 132,000. The jobless rate stayed at 4.5 percent, close to a five-year low.
Manufacturing, Fed Minutes
Personal spending rose 0.5 percent in April and the gauge of inflation most closely watched by the Federal Reserve rose 0.1 percent, less than the 0.2 percent gain forecast in a Bloomberg survey.
That left the inflation measure with a gain of 2 percent from April 2006. Fed officials, including Chairman Ben S. Bernanke, have said they'd be comfortable with a 1 percent to 2 percent range.
The Institute for Supply Management's factory index rose to 55 in May, the highest in 13 months, from 54.7 in April.
Minutes released this week from the Fed's rate-setting Open Market Committee showed policy makers expect economic growth to pick up and approach its ``trend rate'' next year.
``The employment numbers looked pretty good -- consumers continue to spend,'' said Hans Olsen, who oversees $2.4 billion as chief investment officer at Bingham Legg Advisers LLC in Boston. ``All told, we're lining up for a very good second quarter earnings season.''
More Takeovers
About $63 billion in announced mergers and acquisitions this week added to this year's record pace of takeovers.
Archstone-Smith surged 11 percent to $61.57. Tishman Speyer, the New York-based real-estate investor, and Lehman agreed to buy Archstone for $60.75 a share, the companies said in a statement.
A gauge of real-estate companies in the S&P 500 rose 6.9 percent. Simon Property Group Inc. gained 6 percent to $108.02. Equity Residential jumped 7 percent to $50.89.
Dow Jones & Co., publisher of the Wall Street Journal, surged 18 percent to $61.20 for the top gain in the S&P 500. The Bancroft family said it will consider other bidders and options for the company while agreeing to meet with Rupert Murdoch's News Corp. to discuss his $60-a-share bid. The Bancrofts' Dow Jones shares give them 64 percent of the votes.
Avaya Inc. rose 18 percent to $16.08 for the second-best gain in the S&P 500. Silver Lake Partners is in talks about a buyout of the world's biggest maker of corporate telephone equipment, according to the Wall Street Journal. Avaya spokesman Jim Finn and Matt Benson, spokesman for Silver Lake, declined to comment.
``There's a liquidity boom out there globally that's putting a floor under markets,'' said Sean Clark, who helps manage $1.3 billion as chief investment officer at Clark Capital Management in Philadelphia. ``We think there's lots of room for stocks to move higher.''
Earnings Top Estimates
Dell jumped 5 percent to $27.30, its highest level since November 2006. First-quarter profit excluding some costs was 36 cents a share, topping the average 27-cent estimate in a Bloomberg survey of analysts. Sales totaled $14.6 billion, compared with the $14.1 billion anticipated by analysts.
The company said it raised average selling prices of its products by 14 percent and slashed procurement costs. Dell also will cut about 8,800 jobs.
Ciena Corp. jumped 16 percent to $34.92. The maker of computer-networking equipment had second-quarter profit and sales that topped analysts' estimates as phone companies including BT Group Plc boosted spending to make their systems faster.
Technology shares in the S&P 500 extended a five-day rally and climbed 2 percent for the second-best performance among 10 industry groups.
About 66 percent of the 483 S&P 500 companies that reported first-quarter results beat analysts' estimates, according to data compiled by Bloomberg. Earnings climbed 11.6 percent on average, more than three times analysts' estimates in March.
Wal-Mart Stores Inc., the world's biggest retailer, rose the most in 19 months after saying it will buy back as much as $15 billion in stock. The buyback equals as much as 7.4 percent of its stock outstanding.
At its annual meeting, the company also said it will build fewer stores than it previously predicted. The shares added 5.5 percent to $49.47 for the best advance in the Dow industrials.
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net .
Last Updated: June 2, 2007 11:46 EDT
Japanese Bonds Drop for Second Week on Improving U.S. Economy
By Issei Morita
June 2 (Bloomberg) -- Japan's government bonds fell for a second week, pushing yields to the highest in seven months, on speculation export demand from the U.S. will be supported as the economy recovers from a slowdown.
Japanese bonds due in 10 years or more last month handed investors the biggest loss in almost a year, according to a Merrill Lynch & Co. index. Benchmark 10-year bonds declined as reports this week showed U.S. consumer confidence and business activity increased, adding to expectations the economy will rebound from the slowest quarterly growth in more than four years.
``Japan's bond yields finally started to rise and investors are reluctant now to buy,'' said Satoshi Kon, who helps oversee the equivalent of about $19 billion in Japanese debt at the Pension Fund Association, which has more than 1,600 corporate funds as members. ``There is a widespread expectation that the U.S. economy is now rebounding.''
Benchmark 10-year bond yields rose 5 basis points this week to 1.77 percent in Tokyo, according to Japan Bond Trading Co., the nation's largest interdealer debt broker. The yield on the 1.7 percent bond due March 2017 climbed as high as 1.775 percent, the most since Oct. 26.
The yield on the five-year note touched 1.375 percent, the highest since August. A basis point is 0.01 percentage point.
Worst Return
Japanese bonds maturing in 10 years or longer handed investors a loss of 0.9 percent in May, the worst return since June last year, when they incurred a loss of 1.5 percent, according to the Merrill Lynch index.
Ten-year yields rose 13 basis points last month, less than half the advance of similar-maturity U.S. Treasury yields. The spread between 10-year Japanese and U.S. yields was 3.15 percentage points yesterday, compared with the average of 3.04 points in the past year.
``Yields overseas are high on economic optimism, and Japan's yields have room to catch up,'' said Xinyi Lu, chief strategist of the international treasury division at Mizuho Corporate Bank Ltd. in Tokyo.
Large Redemption
The decline in bonds was limited by speculation buying in the secondary market will increase this month as more debt will mature than the Ministry of Finance is scheduled to sell.
``This month we have a large redemption coming,'' said Maki Shimizu, a bond strategist at UBS Securities Japan Ltd. in Tokyo. The extra demand for bonds may push the 10-year yield down to 1.7 percent by the end of next week, she said.
Redemption of maturing bonds and purchases by the central bank and Ministry of Finance will remove 3.2 trillion yen ($26.2 billion) of government debt from the market this month, according to calculations by Mitsubishi UFJ Securities Co.
Japan's bonds also fell this week on concern the central bank will raise borrowing costs as early as next quarter, said Akio Kato, senior portfolio manager at Kokusai Asset Management Co. in Tokyo. Government reports this week showed the jobless rate dropped to a nine-year low and household spending rose for a fourth month.
Bank of Japan Governor Toshihiko Fukui said last month that even with prices falling the risk of excessive investment might be a reason to raise interest rates. The bank key overnight lending rate is 0.5 percent.
Fukui's recent comments have ``reminded us that the BOJ's willingness to increase rates is very firm,'' Kokusai's Kato said. The bank will increase rates as early as August, he said.
The gap in yields between two- and 20-year bonds narrowed to 1.15 percentage points on May 30, the least since July 2003, according to data compiled by Bloomberg using compound yields.
Bond futures for June delivery declined 0.57 this week to 132.86 on the Tokyo Stock Exchange.
To contact the reporter on this story: Issei Morita in Tokyo at imorita@bloomberg.net .
Last Updated: June 1, 2007 18:51 EDT
June 2 (Bloomberg) -- Japan's government bonds fell for a second week, pushing yields to the highest in seven months, on speculation export demand from the U.S. will be supported as the economy recovers from a slowdown.
Japanese bonds due in 10 years or more last month handed investors the biggest loss in almost a year, according to a Merrill Lynch & Co. index. Benchmark 10-year bonds declined as reports this week showed U.S. consumer confidence and business activity increased, adding to expectations the economy will rebound from the slowest quarterly growth in more than four years.
``Japan's bond yields finally started to rise and investors are reluctant now to buy,'' said Satoshi Kon, who helps oversee the equivalent of about $19 billion in Japanese debt at the Pension Fund Association, which has more than 1,600 corporate funds as members. ``There is a widespread expectation that the U.S. economy is now rebounding.''
Benchmark 10-year bond yields rose 5 basis points this week to 1.77 percent in Tokyo, according to Japan Bond Trading Co., the nation's largest interdealer debt broker. The yield on the 1.7 percent bond due March 2017 climbed as high as 1.775 percent, the most since Oct. 26.
The yield on the five-year note touched 1.375 percent, the highest since August. A basis point is 0.01 percentage point.
Worst Return
Japanese bonds maturing in 10 years or longer handed investors a loss of 0.9 percent in May, the worst return since June last year, when they incurred a loss of 1.5 percent, according to the Merrill Lynch index.
Ten-year yields rose 13 basis points last month, less than half the advance of similar-maturity U.S. Treasury yields. The spread between 10-year Japanese and U.S. yields was 3.15 percentage points yesterday, compared with the average of 3.04 points in the past year.
``Yields overseas are high on economic optimism, and Japan's yields have room to catch up,'' said Xinyi Lu, chief strategist of the international treasury division at Mizuho Corporate Bank Ltd. in Tokyo.
Large Redemption
The decline in bonds was limited by speculation buying in the secondary market will increase this month as more debt will mature than the Ministry of Finance is scheduled to sell.
``This month we have a large redemption coming,'' said Maki Shimizu, a bond strategist at UBS Securities Japan Ltd. in Tokyo. The extra demand for bonds may push the 10-year yield down to 1.7 percent by the end of next week, she said.
Redemption of maturing bonds and purchases by the central bank and Ministry of Finance will remove 3.2 trillion yen ($26.2 billion) of government debt from the market this month, according to calculations by Mitsubishi UFJ Securities Co.
Japan's bonds also fell this week on concern the central bank will raise borrowing costs as early as next quarter, said Akio Kato, senior portfolio manager at Kokusai Asset Management Co. in Tokyo. Government reports this week showed the jobless rate dropped to a nine-year low and household spending rose for a fourth month.
Bank of Japan Governor Toshihiko Fukui said last month that even with prices falling the risk of excessive investment might be a reason to raise interest rates. The bank key overnight lending rate is 0.5 percent.
Fukui's recent comments have ``reminded us that the BOJ's willingness to increase rates is very firm,'' Kokusai's Kato said. The bank will increase rates as early as August, he said.
The gap in yields between two- and 20-year bonds narrowed to 1.15 percentage points on May 30, the least since July 2003, according to data compiled by Bloomberg using compound yields.
Bond futures for June delivery declined 0.57 this week to 132.86 on the Tokyo Stock Exchange.
To contact the reporter on this story: Issei Morita in Tokyo at imorita@bloomberg.net .
Last Updated: June 1, 2007 18:51 EDT
Sunday, June 3, 2007
Japan's Stocks Advance, Paced by Automakers; Toyota Rises
By Makiko Suzuki
June 1 (Bloomberg) -- Japanese shares gained, led by automakers, on speculation Toyota Motor Corp.'s U.S. sales rose in May and that the company will report higher-than-estimated earnings for the first three months of this business year.
Denso Corp. and Aisin Seiki Co., Toyota affiliates that make auto parts, jumped. Nippon Mining Holdings Inc. and Mitsui & Co. advanced after prices of crude oil and metals climbed.
``Investors bought Toyota on speculation it will post first-quarter earnings that are much better than the company forecast,'' said Mitsushige Akino, who oversees the equivalent of $470 million at Ichiyoshi Investment Management Co. in Tokyo. ``Commodity shares are also on a rising trend helped by a more optimistic outlook on oil and metals prices.''
The Nikkei 225 Stock Average added 83.13 or 0.5 percent, to 17,958.88. The Topix index rose 12.20, or 0.7 percent, to 1767.88.
Toyota jumped 160 yen, or 2.2 percent, to 7,460, leading gains by automakers. Denso, Japan's biggest auto-parts maker which is 23 percent owned by Toyota, advanced 60 yen, or 1.4 percent, to 4,330. Aisin Seiki, an affiliate of Toyota which makes transmissions and clutches, climbed 100 yen, or 2.4 percent, to 4,210.
Toyota probably moved closer in May to ending Ford Motor Co.'s 76-year reign as the second-biggest seller of automobiles in the U.S.
Toyota Sales
Ford's sales may have dropped in May for a seventh straight month and Toyota's probably rose, analysts surveyed by Bloomberg said. Through April, Ford's lead in U.S. sales had narrowed to 50,242 vehicles from 232,922 after the first four months last year. Automakers report U.S. sales later today.
Toyota forecast its smallest profit increase in a decade on May 9, citing slowing U.S. growth and investments in new factories. The carmaker said net income will probably rise by only 0.4 percent for this business year and North American sales gains may slow to 1.6 percent from 15.1 percent last year.
Nippon Mining, which made almost 80 percent of its sales from oil refining, advanced 29 yen, or 2.7 percent, to 1,099. Mitsui & Co., which trades industrial fuel and metals, jumped 70 yen, or 2.9 percent, to 2,470. Sumitomo Metal Mining Co., the nation's largest non-ferrous metal producer, rose 135 yen, or 4.9 percent, to 2,910.
Crude oil for July delivery advanced 0.8 percent to $64.01 a barrel yesterday and the July contract for copper jumped 2.8 percent. Oil was recently at $64.16 in after-hours electronic trading.
Dell's Earnings
Technology-related shares gained after Dell Inc., the world's No. 2 personal computer maker, posted earnings that beat analyst estimates.
Advantest Corp., the world's biggest maker of memory-chip testing equipment, climbed 80 yen, or 1.5 percent, to 5,280. NEC Corp., Japan's largest personal computer maker, added 6 yen, or 1 percent, to 626.
``Solid earnings in the U.S. will also encourage investors to buy technology shares and I bet those stocks will lead indexes once benchmarks start to have a big rally,'' said Ichiyoshi's Akino.
Dell surged as much as 8.3 percent in extended trading in New York after reporting that its first-quarter profit and sales exceeded analyst estimates and said it will cut 10 percent of its staff.
Ratings Raised
Mitsubishi Corp., Japan's biggest trading company which sells industrial fuel and coking coal, jumped 115 yen, or 3.9 percent, to 3,080 after Goldman, Sachs & Co. recommended investors buy the stock, citing a better outlook for prices of coking coal. The brokerage had a ``neutral'' rating before. Mitsubishi was the most actively traded stock by value, with 124.7 billion yen ($1.02 billion) in shares changing hands.
Kajima Corp., Japan's biggest general contractor by sales, surged 23 yen, or 4.6 percent, to 519. Taisei Corp., the nation's second largest, climbed 16 yen, or 4 percent, to 417. Credit Suisse Group raised its rating on the stocks to ``outperform'' from ``neutral'' and recommended investors increase their allocation of funds to contractors to the same proportion as in benchmarks.
Takeda Pharmaceutical Co., Japan's No. 1 drugmaker by revenue, gained 130 yen, or 1.6 percent, to 8,300. Nikko Citigroup Ltd. lifted its 12-month share-price estimate to 9,200 yen from 8,900 yen.
Nikkei futures expiring in June rose 0.5 percent to 17,950 in Osaka and gained 0.5 percent to 17,940 in Singapore.
The Nikkei advanced 2.7 percent this week, the first back- to-back weekly gains since February 23. The Topix added 3.1 percent.
Advantest Corp. (6857 JT)
Aisin Seiki Co. (7259 JT)
Denso Corp. (6902 JT)
Kajima Corp. (1812 JT)
Mitsubishi Corp. (8058 JT)
Mitsui & Co. (8031 JT)
NEC Corp. (6701 JT)
Nippon Mining Holdings Inc. (5016 JT)
Sumitomo Metal Mining Co. (5713 JT)
Taisei Corp. (1801 JT)
Takeda Pharmaceutical Co. (4502 JT)
Toyota Motor Corp. (7203 JT)
To contact the reporter for this story: Makiko Suzuki in Tokyo at Msuzuki13@bloomberg.net
Last Updated: June 1, 2007 02:39 EDT
June 1 (Bloomberg) -- Japanese shares gained, led by automakers, on speculation Toyota Motor Corp.'s U.S. sales rose in May and that the company will report higher-than-estimated earnings for the first three months of this business year.
Denso Corp. and Aisin Seiki Co., Toyota affiliates that make auto parts, jumped. Nippon Mining Holdings Inc. and Mitsui & Co. advanced after prices of crude oil and metals climbed.
``Investors bought Toyota on speculation it will post first-quarter earnings that are much better than the company forecast,'' said Mitsushige Akino, who oversees the equivalent of $470 million at Ichiyoshi Investment Management Co. in Tokyo. ``Commodity shares are also on a rising trend helped by a more optimistic outlook on oil and metals prices.''
The Nikkei 225 Stock Average added 83.13 or 0.5 percent, to 17,958.88. The Topix index rose 12.20, or 0.7 percent, to 1767.88.
Toyota jumped 160 yen, or 2.2 percent, to 7,460, leading gains by automakers. Denso, Japan's biggest auto-parts maker which is 23 percent owned by Toyota, advanced 60 yen, or 1.4 percent, to 4,330. Aisin Seiki, an affiliate of Toyota which makes transmissions and clutches, climbed 100 yen, or 2.4 percent, to 4,210.
Toyota probably moved closer in May to ending Ford Motor Co.'s 76-year reign as the second-biggest seller of automobiles in the U.S.
Toyota Sales
Ford's sales may have dropped in May for a seventh straight month and Toyota's probably rose, analysts surveyed by Bloomberg said. Through April, Ford's lead in U.S. sales had narrowed to 50,242 vehicles from 232,922 after the first four months last year. Automakers report U.S. sales later today.
Toyota forecast its smallest profit increase in a decade on May 9, citing slowing U.S. growth and investments in new factories. The carmaker said net income will probably rise by only 0.4 percent for this business year and North American sales gains may slow to 1.6 percent from 15.1 percent last year.
Nippon Mining, which made almost 80 percent of its sales from oil refining, advanced 29 yen, or 2.7 percent, to 1,099. Mitsui & Co., which trades industrial fuel and metals, jumped 70 yen, or 2.9 percent, to 2,470. Sumitomo Metal Mining Co., the nation's largest non-ferrous metal producer, rose 135 yen, or 4.9 percent, to 2,910.
Crude oil for July delivery advanced 0.8 percent to $64.01 a barrel yesterday and the July contract for copper jumped 2.8 percent. Oil was recently at $64.16 in after-hours electronic trading.
Dell's Earnings
Technology-related shares gained after Dell Inc., the world's No. 2 personal computer maker, posted earnings that beat analyst estimates.
Advantest Corp., the world's biggest maker of memory-chip testing equipment, climbed 80 yen, or 1.5 percent, to 5,280. NEC Corp., Japan's largest personal computer maker, added 6 yen, or 1 percent, to 626.
``Solid earnings in the U.S. will also encourage investors to buy technology shares and I bet those stocks will lead indexes once benchmarks start to have a big rally,'' said Ichiyoshi's Akino.
Dell surged as much as 8.3 percent in extended trading in New York after reporting that its first-quarter profit and sales exceeded analyst estimates and said it will cut 10 percent of its staff.
Ratings Raised
Mitsubishi Corp., Japan's biggest trading company which sells industrial fuel and coking coal, jumped 115 yen, or 3.9 percent, to 3,080 after Goldman, Sachs & Co. recommended investors buy the stock, citing a better outlook for prices of coking coal. The brokerage had a ``neutral'' rating before. Mitsubishi was the most actively traded stock by value, with 124.7 billion yen ($1.02 billion) in shares changing hands.
Kajima Corp., Japan's biggest general contractor by sales, surged 23 yen, or 4.6 percent, to 519. Taisei Corp., the nation's second largest, climbed 16 yen, or 4 percent, to 417. Credit Suisse Group raised its rating on the stocks to ``outperform'' from ``neutral'' and recommended investors increase their allocation of funds to contractors to the same proportion as in benchmarks.
Takeda Pharmaceutical Co., Japan's No. 1 drugmaker by revenue, gained 130 yen, or 1.6 percent, to 8,300. Nikko Citigroup Ltd. lifted its 12-month share-price estimate to 9,200 yen from 8,900 yen.
Nikkei futures expiring in June rose 0.5 percent to 17,950 in Osaka and gained 0.5 percent to 17,940 in Singapore.
The Nikkei advanced 2.7 percent this week, the first back- to-back weekly gains since February 23. The Topix added 3.1 percent.
Advantest Corp. (6857 JT)
Aisin Seiki Co. (7259 JT)
Denso Corp. (6902 JT)
Kajima Corp. (1812 JT)
Mitsubishi Corp. (8058 JT)
Mitsui & Co. (8031 JT)
NEC Corp. (6701 JT)
Nippon Mining Holdings Inc. (5016 JT)
Sumitomo Metal Mining Co. (5713 JT)
Taisei Corp. (1801 JT)
Takeda Pharmaceutical Co. (4502 JT)
Toyota Motor Corp. (7203 JT)
To contact the reporter for this story: Makiko Suzuki in Tokyo at Msuzuki13@bloomberg.net
Last Updated: June 1, 2007 02:39 EDT
Monday, May 28, 2007
Japan's Consumer-Price Declines Slow to 0.1% (Update6)
By Mayumi Otsuma
May 25 (Bloomberg) -- Japan's consumer prices fell at a slower pace in April, signaling gains may soon resume, making it easier for the central bank to raise interest rates.
Core prices, which exclude fresh food, declined 0.1 percent from a year earlier, the statistics bureau said today in Tokyo, matching economists' estimates. The measure of inflation fell 0.3 percent in March, the steepest drop in two years.
Rising prices would shore up support for the Bank of Japan's policy of increasing its 0.5 percent benchmark interest rate, the lowest among major economies. Governor Toshihiko Fukui said last week that the bank could raise rates even with prices falling to prevent excessive investment and sustain growth.
``The improvement of consumer prices certainly provides relief and gives the BOJ's arguments some conviction,'' said Eishi Yokoyama, an economist at AIG Global Investment Corp. in Tokyo. ``We're going to see more speculation among investors about an early rate hike.''
The yen traded at 121.34 per dollar at 4:58 p.m. in Tokyo from 121.41 before the report was published, and earlier climbed as high as 120.86. The yield on Japan's five-year note rose 3 basis points to 1.3 percent, the highest level in four months.
Fukui has said prices will rise again once the effect of a gain in oil prices last year fades. The bank needs to increase the key rate as the economy expands and inflation gathers pace, he said.
End of Deflation
``The end of deflation is in sight,'' Economic and Fiscal Policy Minister Hiroko Ota said today. ``The risk that prices may keep falling remains, so we can't yet declare the end of deflation.''
Finance Minister Koji Omi said there was ``some improvement'' in prices last month. He said the central bank's policy should support economic growth.
April's decline in core consumer prices was the third straight monthly drop. Core prices in Tokyo, a harbinger of nationwide prices, were unchanged for a second month in May, also in line with economists' expectations.
Dubai crude, a benchmark for Asian refiners, traded at more than $70 a barrel last August, compared with around $67 today.
``The impact of last summer's oil price gains near records will linger over core prices for the time being, and they won't become positive until November,'' said Mitsumaru Kumagai, chief fixed-income strategist at Merrill Lynch & Co. in Tokyo.
IMF, OECD
Both the International Monetary Fund and the Organization for Economic Cooperation and Development yesterday urged the bank to keep rates on hold until prices ``firmly'' rise. The IMF said it's ``appropriate'' for the bank to gradually raise rates.
The bank needs to closely watch how companies pass recent increases in energy and raw material costs to consumers, some members of the policy board said at an April 9-10 meeting, according to minutes published this week.
Recent price increases suggest inflationary expectations are reviving among consumers and prices will resume rising.
Oji Paper Co. will increase prices of paper for catalogues and books by 10 percent from July 1 because of higher costs of materials including wood chips, Hidehiko Aoyama, deputy head of Oji's printing paper division, said this week.
Taxi companies in Nagano and Oita prefectures raised fares by about 10 percent last month and taxi services in more than half of Japan's 90 operating districts are asking regulators for permission to increases fares.
Anecdotal Evidence
``The recent anecdotal evidence gives reason to expect gains in inflation in June or July,'' said Hiromichi Shirakawa, a former central bank official who's now chief economist at Credit Suisse in Tokyo. ``There's an argument that Japanese companies may not have room to keep cutting costs. That's why the risk to the CPI is to the upside.''
The bank should also watch how the revision of service prices in April or later will affect consumer prices, board members said. Businesses often review prices when Japan's fiscal year starts in April. The prices companies pay for services climbed 0.6 percent in March, the fastest pace in nine years.
``As in the U.S. and other developed countries, consumer price trends should be heavily dependent on services because prices of goods remain slack,'' said Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan Co. in Tokyo., also a former BOJ official.
BOJ's Mizuno
Atsushi Mizuno, a central bank board member, told Jiji Press this week that a weaker yen and costlier materials are mounting pressure on companies to raise prices. A recovery in consumption makes it easier for households to accept price increases, he added, according to Jiji.
Consumer spending has risen in the past two quarters and may cushion the economy from slower growth in the U.S., Japan's largest market.
``Fears that core price declines may worsen are receding among consumers, and prices are gradually settling onto an upward trend,'' said Azusa Kato, an economist at BNP Paribas Securities in Tokyo, who expects prices to resume rising in the fourth quarter and the bank to raise rates in the same period.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
Last Updated: May 25, 2007 04:00 EDTFriday, May 25, 2007
Japan's Consumer-Price Declines Slow to 0.1% (Update5)
By Mayumi Otsuma
May 25 (Bloomberg) -- Japan's consumer prices fell at a slower pace in April, signaling gains may soon resume, making it easier for the central bank to raise interest rates.
Core prices, which exclude fresh food, declined 0.1 percent from a year earlier, the statistics bureau said today in Tokyo, matching economists' estimates. The measure of inflation fell 0.3 percent in March, the steepest drop in two years.
Rising prices would shore up support for the Bank of Japan's policy of increasing its 0.5 percent benchmark interest rate, the lowest among major economies. Governor Toshihiko Fukui said last week that the bank could raise rates even with prices falling to prevent excessive investment and sustain growth.
``The improvement of consumer prices certainly provides relief and gives the BOJ's arguments some conviction,'' said Eishi Yokoyama, an economist at AIG Global Investment Corp. in Tokyo. ``We're going to see more speculation among investors about an early rate hike.''
The yen strengthened to 121.09 per dollar at 12:21 p.m. in Tokyo from 121.41 before the report was published, and to 162.55 per euro from 163.00. The yield on Japan's 10-year bond rose half a basis point to 1.7 percent.
Fukui has said prices will rise again once the effect of last year's gain in oil prices fades. The bank needs to increase the key rate as the economy expands and inflation gathers pace, he said.
End of Deflation
``The end of deflation is in sight,'' Economic and Fiscal Policy Minister Hiroko Ota said today. ``The risk that prices may keep falling remains, so we can't yet declare the end of deflation.''
Finance Minister Koji Omi said there was ``some improvement'' in prices last month. He said the central bank's policy should support economic growth.
April's decline in core consumer prices was the third straight monthly drop. Core prices in Tokyo, a harbinger of nationwide prices, were unchanged for a second month in May, also in line with economists' expectations.
Dubai crude, a benchmark for Asian refiners, traded at more than $70 a barrel last August, compared with around $67 today.
``The impact of last summer's oil price gains near records will linger over core prices for the time being, and they won't become positive until November,'' said Mitsumaru Kumagai, chief fixed-income strategist at Merrill Lynch & Co. in Tokyo.
IMF, OECD
Both the International Monetary Fund and the Organization for Economic Cooperation and Development yesterday urged the bank to keep rates on hold until prices ``firmly'' rise. The IMF said it's ``appropriate'' for the bank to gradually raise rates.
The bank needs to closely watch how companies pass recent increases in energy and raw material costs to consumers, some members of the policy board said at an April 9-10 meeting, according to minutes published this week.
Recent price increases suggest inflationary expectations are reviving among consumers and prices will resume rising.
Oji Paper Co. will increase prices of paper for catalogues and books by 10 percent from July 1 because of higher costs of materials including wood chips, Hidehiko Aoyama, deputy head of Oji's printing paper division, said this week.
Taxi companies in Nagano and Oita prefectures raised fares by about 10 percent last month and taxi services in more than half of Japan's 90 operating districts are asking regulators for permission to increases fares.
Anecdotal Evidence
``The recent anecdotal evidence gives reason to expect gains in inflation in June or July,'' said Hiromichi Shirakawa, a former central bank official who's now chief economist at Credit Suisse in Tokyo. ``There's an argument that Japanese companies may not have room to keep cutting costs. That's why the risk to the CPI is to the upside.''
The bank should also watch how the revision of service prices in April or later will affect consumer prices, board members said. Businesses often review prices when Japan's fiscal year starts in April. The prices companies pay for services climbed 0.6 percent in March, the fastest pace in nine years.
``As in the U.S. and other developed countries, consumer price trends should be heavily dependent on services because prices of goods remain slack,'' said Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan Co. in Tokyo., also a former BOJ official.
BOJ's Mizuno
Atsushi Mizuno, a central bank board member, told Jiji Press this week that a weaker yen and costlier materials are mounting pressure on companies to raise prices. A recovery in consumption makes it easier for households to accept price increases, he added, according to Jiji.
Consumer spending has risen in the past two quarters and may cushion the economy from slower growth in the U.S., Japan's largest market.
``Fears that core price declines may worsen are receding among consumers, and prices are gradually settling onto an upward trend,'' said Azusa Kato, an economist at BNP Paribas Securities in Tokyo, who expects prices to resume rising in the fourth quarter and the bank to raise rates in the same period.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
Tuesday, May 22, 2007
Japanese Stocks Gain; Banks Rise on Earnings Expectations
By Makiko Suzuki
May 22 (Bloomberg) -- Japanese stocks advanced, led by banks, after Sumitomo Mitsui Financial Group Inc. forecast profit will increase for this business year.
Sumitomo Mitsui climbed 3.8 percent after projecting a 22 percent increase in its net income for this business year. NEC Corp. jumped 7 percent, the biggest gain since Oct. 2005, after saying profit will triple this year.
``People are saying Sumitomo Mitsui's earnings forecast is still conservative and speculation over bigger profit growth in the industry pushed bank shares higher,'' said Katsunori Hirai, who helps oversee $20 billion in assets at Tokio Marine Asset Management Co. in Tokyo. ``Some investors started to buy technology shares on the expectation they will benefit from a possible recovery in the U.S. economy later this year.''
U.S. gross domestic product, the sum of all goods and services produced, rose at an annual rate of 1.3 percent in January through March, compared with a 2.5 percent gain the previous quarter and economists' estimate for 1.8 percent growth.
This month, the Reuters/University of Michigan preliminary index of sentiment rose unexpectedly to 88.7 from 87.1 in April.
The Nikkei 225 Stock Average added 100.79, or 0.6 percent, to 17,657.66 as of 10:56 a.m. in Tokyo. The broader Topix index rose 13.55, or 0.8 percent, to 1724.22.
Sumitomo Mitsui, Japan's third-largest bank by assets, climbed 40,000 yen, or 3.8 percent, to 1.1 million. Mizuho Financial Group, the country's No. 2, climbed 17,000 yen, or 2.2 percent, to 786,000. Mitsubishi UFJ Financial Group Inc., the nation's largest, rose 20,000 yen, or 1.5 percent, to 1.34 million.
NEC Climbs
Sumitomo Mitsui forecast profit will rise 22 percent to 540 billion yen ($4.45 billion) for the 12 months to March 2008.
Mizuho is scheduled to report earnings today after the market closes, followed by Mitsubishi UFJ tomorrow.
Among the companies that reported results yesterday, NEC, Japan's largest personal computer maker, climbed 41 yen, or 7 percent, to 630, the largest gain since Oct. 4, 2005. NEC said yesterday net income will increase to 30 billion yen in the 12 months ending March 31, exceeding the 9.1 billion yen a year earlier.
Other technology-related shares also advanced. Sony Corp., the world's biggest video-game maker, climbed 180 yen, or 2.6 percent, to 7,120. Sony said on May 16 its profit will more than double to a record this year. Canon Inc., the world's No. 1 digital camera maker, added 50 yen, or 0.7 percent, to 7,120. Canon reported a record first-quarter profit and raised its net income forecast on April 24.
Yamaha Corp., a maker of musical instruments, added 50 yen, or 1.9 percent, to 2,695 after saying it will sell 7.8 percent of Yamaha Motor Co., which produces motorcycles, for 63 billion yen and book a gain of 29 billion yen.
Three percent of Yamaha Motor will go to Mitsui & Co. today, and the rest will be sold to institutional investors through a brokerage later this month, Yamaha said yesterday after the market closed.
Takeda Pharmaceutical Co., Japan's biggest drugmaker, gained 110 yen, or 1.4 percent, to 7,860 after researchers said GlaxoSmithKline Plc's drug Avandia, the world's top-selling oral diabetes treatment, may raise a patient's chance of having a heart attack. Takeda sells similar product, Actos, that doesn't have a heart risk.
Nikkei futures expiring in June rose 0.6 percent to 17,670 in Osaka and advanced 0.6 percent to 17,665 in Singapore.
To contact the reporter for this story: Makiko Suzuki in Tokyo at Msuzuki13@bloomberg.net
Last Updated: May 21, 2007 22:00 EDTThursday, May 17, 2007
Yen Declines to Record Low Against Euro; Yield Spread to Widen
By Aaron Pan and David McIntyre
May 16 (Bloomberg) -- The yen declined to a record low against the euro for a second day as signs of weaker economic growth suggest the Bank of Japan is unlikely to raise interest rates soon, spurring the so-called carry trade.
The yield advantage on German two-year notes over Japanese equivalents rose to the most in almost five years after reports showed yesterday Europe's economy grew more than expected and Japanese machinery orders fell. The yen has fallen versus 15 of the 16 most-traded currencies this year as investors borrow at Japan's 0.5 percent interest rate to seek higher returns abroad.
``There's no limit to euro-yen at the moment,'' said Ian Gunner, head of foreign-exchange research at Mellon Bank NA in London. ``The yen is going to get weaker and weaker because this yield story is still very much intact.''
The yen dropped to an all-time low of 163.86 per euro before trading at 163.81 at 7:11 a.m. in New York from 163.45 late yesterday. The currency could drop as low as 170 against the euro in the next six weeks, Gunner said. The yen also weakened to 120.45 per dollar from 120.27. The dollar was at $1.3599 per euro from $1.3591.
Japan's currency dropped for a fourth day versus the euro as the yield spread between German and Japanese two-year government bonds widened to 3.38 percentage points, the most since September 2002. The BOJ will keep rates unchanged at a two-day policy meeting starting today, according to all 49 economists surveyed by Bloomberg News.
Investors expect the ECB to raise its benchmark rate again after an increase to 4 percent in June, futures trading shows. The yield on the three-month Euribor contract for December was 4.42 percent. The contracts settle to the three-month inter-bank offered rate for the euro, which has averaged 16 basis points more than the ECB rate since the currency's start in 1999.
ECB Remarks
ECB council member Guy Quaden today said rates aren't hindering the euro-region's economic growth, De Tijd reported, citing an interview. Quaden, who is also head of the Belgian central bank, said the ECB will ``do what's necessary,'' according to the newspaper.
``The current exchange rate of the euro is less problematic than two or three years ago,'' he also said.
Council member and French central bank Chief Christian Noyer also said today in a speech in Mumbai that borrowing costs aren't slowing growth in the 13 countries that share the euro.
``It's clear we're going to get one more hike out of the ECB and, depending on what the euro does and how much more political pressure is put on, they are probably going to do two or three more,'' said Simon Derrick, chief currency strategist at Bank of New York in London. He forecasts the euro rising to 170 yen by September.
Carry Trades
The yen has fallen 16 percent against the euro in the past year as investors entered carry trades by borrowing Japan's currency to buy euro-denominated assets with higher yields.
Volatility on one-month euro-yen options stood at 6.78 percent, down from 7.20 percent a week ago. Lower volatility may encourage carry trades as it exposes bets to less currency risk.
Japan's currency two days ago fell to the lowest since 1990 against the New Zealand dollar and yesterday dropped to the weakest since 1992 against the Canadian dollar on speculation investors will increase carry trades.
New Zealand's currency last bought 88.81 yen, after reaching 89.06. Canada's dollar traded at 109.58 yen from as high as 109.82. Interest rates are 7.75 percent in New Zealand and 4.25 percent in Canada.
U.S. Housing Market
The dollar may fall for a fourth day against the euro before a report today that's forecast to show U.S. builders constructed new homes at a slower pace, suggesting the housing market may weigh on the economy. The Labor Department will say at 8:30 a.m. in Washington housing starts fell to an annual 1.48 million units in April, according to a Bloomberg News survey.
The dollar yesterday fell to an all-time low of 78.97 against the currencies of seven trading partners, according to a Fed index published on its Web site. The euro area has the heaviest weight in the index, followed by Canada, Japan, the U.K., Switzerland, Australia and Sweden.
The Fed's broad dollar index also dropped to 104.2, the lowest since July 1997. This index includes 26 currencies.
``The U.S. housing market seems not to have bottomed,'' said Shigeru Nakane, planning manager of the market trading office in Tokyo at Resona Bank Ltd., a unit of Japan's fourth-biggest lender. ``Amid the bearish sentiment, the dollar looks weak.'' The U.S. currency may fall to 119.80 yen today, he said.
Traders should place a stop-loss on a short dollar position at 120.60 yen, Nakane said. The dollar rose as high as 120.58 yen yesterday, the strongest since Feb. 27. A short is a bet on a decline.
To contact the reporter on this story: Aaron Pan in London at apan8@bloomberg.net ; David McIntyre in Sydney at dmcintyre2@bloomberg.net
Last Updated: May 16, 2007 07:19 EDTSaturday, May 5, 2007
Dollar Falls Versus Euro on Jobs Data After Four Days of Gains
May 4 (Bloomberg) -- The dollar fell against the euro after four days of gains and dropped from a two-month high versus the yen after a government report showed U.S. employers added the fewest jobs in more than two years.
The
``Growth and interest rate expectations are conspiring against the dollar,'' said Michael Woolfolk, senior currency strategist in
The dollar fell 0.32 percent to $1.3593 per euro at 10:54 a.m. in
The
The Australian dollar tumbled against all 16 major currencies today after the country's central bank cut its inflation forecast, weakening the case for increased borrowing costs. The currency dropped 0.42 percent to 82.05 U.S. cents.
Jobless Rate Rises
The U.S. unemployment rate rose to 4.5 percent from the five-year low of 4.4 percent as employers added 88,000 non-farm jobs in April, following a revised 177,000 the previous month, the Labor Department reported today in Washington. The median forecast of 85 economists surveyed by Bloomberg News was for a gain of 100,000.
``The market already factored in a lower number,'' said Brian Dolan, research director at Forex.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey, which has about $250 million funds under management. ``People shorted the dollar before the report.'' A short is a bet on a currency's decline.
Yields on interest-rate futures fell following the payroll report, indicating traders raised bets the Fed will lower borrowing costs this year.
The yield on Eurodollar futures for December declined to 5.075 percent from a two-week high of 5.105 percent yesterday. The contracts' value at settlement is based on the interest rate on three-month bank deposits, which is influenced by the federal funds rate target.
Benchmark Rates
The Fed has kept its target rate for overnight lending between banks at 5.25 percent since lifting it to that level in June. The European Central Bank has raised its rate seven times since November 2005 to 3.75 percent. The Bank of England's rate is 5.25 percent.
The payroll report pared the dollar's weekly gain against the euro, the first since March. The
The dollar may extend its decline next week on speculation the European Central Bank and the Bank of England will raise borrowing costs while the Fed holds them steady. All three central banks are scheduled to meet to set rates next week.
``We have an ECB that remains hawkish,'' said Simon Derrick, chief currency strategist in
ECB Outlook
UBS AG raised its forecast for the euro to $1.40 by the end of the year, saying it expects the ECB to increase its key rate to 4.75 percent by mid-2008. UBS's previous forecast was for the rate to peak at 4.25 percent this year.
The dollar has lost almost 3 percent against the euro and about 1.7 percent versus the pound since the start of the year.
The euro began its advance earlier today after a report showing a boost in European sales reinforced expectations the ECB will raise rates further this year.
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