Yen weakens; investors contrast rate outlooks
Asset managers go tentatively long carry trades
NEW YORK: The yen weakened across the board on Wednesday, sliding to a 10-month low against the euro, as recent hawkish comments from eurozone and US officials contrasted with Japan's loose monetary policy.
The euro rose to around 117.28 yen on electronic trading platform EBS, its strongest since May 2010, and was seen climbing more on expectations the European Central Bank will start raising interest rates as early as next month.
Rising risk appetite encouraged investors to seek higher-yielding assets, with the Australian dollar climbing to a 29-year high over its US counterpart and a 10-month high against the yen.
"The new high in the Australian dollar, combined with weakness in yen, suggest that the carry trade is building momentum," said Camilla Sutton, chief curren- cy strategist at Scotia Capital in Toronto. "This could put significant weakening pressure on yen, but we would not be surprised to see some dollar/yen downside (yen strength) on the back of ongoing repatriation in late in April."
The US dollar rose to around 83.19 yen, a level last seen on March 11, when the yen initially fell after Japan's earthquake. It last traded at 82.98 yen, up 0.6 per cent.
Traders reported offers at 83.30/50, with orders said to be thin until more supply placed at around 84.00.
Hawkish comments in recent days from US Federal Reserve and European Central Bank officials contrasted with the stance taken by the Bank of Japan, which is set to leave interest rates near zero for some time to support the world's third-largest economy as it recovers from the effects of the earthquake.
Dallas Fed President Richard Fisher said on Tuesday he would vote against further monetary easing after the Federal Reserve's $600 billion bond-buying program ends in June. The euro was down 0.1 per cent on the day at $1.4097 but up 0.5 per cent against the yen at 116.95 yen on electronic trading platform EBS.
The euro is more than 5.0 per cent higher against the dollar this year, and its apparent resilience to fiscal problems facing weak euro-zone countries has led some to nickname it the "Teflon euro."
Speculation that Japanese investors may reduce dollar hedging positions related to their overseas investments, and the absence of huge repatriation flows following the quake, are shifting the focus back to economic fundamentals and reinforcing the yen's status as a funding currency. The market's focus on rate differentials benefited higher-yielding currencies such as the Australian dollar, which traded at $1.0322, near a 29-year high of $1.0334 hit earlier in the global trading day.
The Aussie traded at 85.61 yen after earlier climbing to a 10-month high. -Reuters