Recent articles on Movements in the Currency Markets sourced from FT.

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http://www.ft.com/cms/s/0/4405cf7c-ffb0-11e0-844100144feabdc0.html#ixzz1buT0iyoU Euro drops on fading hopes for EU grand plan By Neil Dennis
The euro led a broad turnround in risk sentiment on the currency markets, falling against the dollar and the yen as European leaders gathered in Brussels for the latest debt crisis summit. The single currency lost ground as rumours on the sidelines of the meeting suggested that a comprehensive plan may yet elude the European Union and that further talks may be scheduled for the coming days. By midday in New York, the euro was down 0.6 per cent to $1.3825 against the dollar and was off 0.8 per cent to Y104.96 against the yen. The best that can be hoped for is that progress continues to be made and that the whole process doesnt go off the rails, said Colin Cieszynski at CMC Markets. There was little sterling-specific news, but the pound crept lower against most of its rivals falling 0.6 per cent to $1.5905 against the dollar and 0.7 per cent to Y120.84 against the yen. Sterling was flat against the euro at 0.8692. Although the yen and the dollar have tended to move in tandem in recent months, depending on the prevailing winds of risk sentiment, the yen has in the past few sessions crept up to a record high against the US currency. The dollar slid 0.2 per cent to Y75.90 on Wednesday, having hit a record low of Y75.69 earlier in the session. Turkeys lira climbed 1.1 per cent against the dollar to TL1.7605 after the countrys central bank unveiled a series of measures aimed at boosting the currency. Its five-

point plan included using tools like interest rates and reserve requirement ratios to foster appreciation for the lira. Short term the lira is likely to benefit from the hawkish central banks stance; however, general market sentiment will remain the main driver and if theres a disappointing result from the EU summit, the central bank will have a difficult time stopping the liras depreciation, said Thu Lan Nguyen at Commerzbank. Other risk assets came under selling pressure, including the Canadian dollar after the countrys central bank warned of below-par fourth-quarter growth. The Canadian dollar fell 0.3 per cent to $1.0131 against its US counterpart. The Australian and New Zealand dollars were also sold. The Aussie lost 0.8 per cent to $1.0343 against the US dollar, while the Kiwi fell 0.4 per cent to $0.7926.

http://www.ft.com/cms/s/0/ace44c10-fe31-11e0-bac400144feabdc0.html#ixzz1buV5du7X Tokyo will not shift to a contentious currency policy By Mansoor Mohi-Uddin
The yen has once again made a new postwar high against the dollar, rising to Y75.69 on Wednesday as Japanese exporters continue to repatriate their foreign currency earnings. The strong yen has prompted finance minister Jun Azumi to warn that the authorities are ready to take decisive action in the currency markets and that he has instructed the finance ministry to be prepared to act. Investors should heed these warnings about intervention and not chase the yen higher. Yet Japanese policymakers are unlikely to follow Switzerlands example and announce an explicit exchange rate target for the yen as some are predicting.
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Yens fresh high raises pressure to intervene Stabilitymasks headwindsfor Japaneseshares Lex the yen S Korea and Japan boost currency swap deal Strong yen weighs on manufacturers

Since the credit crunch began in 2007, Japanese and Swiss officials have faced similar challenges in the currency markets. As central banks around the world started cutting interest rates, foreign exchange investors unwound carry trades funded in low-yielding, safe-haven yen and Swiss francs. The global financial crisis of 2008, the Federal Reserves two rounds of quantitative easing since 2009 and the eurozone debt crisis from 2010 led to both currencies appreciating substantially further. As a result the Swiss franc rose from SFr1.68 against the euro in 2007 to a record high of SFr1.00 earlier this year, while the yen strengthened from Y125 against the dollar four years ago to Wednesdays new high. In order to counter surging exchange rates, the Swiss National Bank and the Bank of Japan both cut interest rates to zero and engaged in unilateral intervention in the currency markets. SNB sales of francs pushed Switzerlands foreign exchange reserves up from $43bn in March 2009 to $220bn by the summer of 2010 while the BoJ sold yen in September 2010, in March this year after Japans earthquake, and again in August. But with the Swiss franc continuing to surge, the SNB went a major step further last month and announced it would pursue an explicit exchange rate target for the franc, committing itself to selling unlimited amounts of domestic currency to prevent the euro from falling below SFr1.20. So far the Swiss authorities have been successful in setting a floor for the euro/Swiss franc exchange rate. The SNB intervened in the currency markets to push the exchange rate up to SFr1.20 on September 6 when it made its announcement to shift to a formal exchange rate target. Since then the Swiss franc has remained weaker than its target level, allowing the central bank to avoid re-entering the currency markets. In contrast the yen has continued to strengthen, raising expectations that authorities in Tokyo will follow Switzerland and announce a minimum floor against the dollar, perhaps at 80. Exchange rate policy in Japan is set by the Ministry of Finance with the Bank of Japan acting as the governments agent in the currency markets. Officials in Tokyo are increasingly concerned that the strength of the yen will result in local companies

relocating factories and jobs from Japan to more competitive destinations like the US. Thus foreign exchange investors should expect renewed intervention in the currency markets if the dollar keeps falling from its weak historic levels against the yen. But Japan is not Switzerland. Despite Tokyos desire to prevent yen strength, policymakers are unlikely to follow the Swiss and pursue an explicit exchange rate target for the yen. First, the authorities in Switzerland only acted after the franc had reached record levels against both the euro and the dollar. In contrast the yen is not trading at extreme levels in real, trade-weighted terms. Second, Switzerland represents a small economy of 8m people. Japan, on the other hand, has the third-largest economy in the world and is a member of the G7. Any move to target its exchange rate explicitly would attract intense criticism from North America and Europe, particularly as it would make it harder to press China to appreciate the renminbi at a faster pace. Third, Japan has more policy options. Switzerlands government and corporate bond markets are limited in size. Thus when the SNB pursues quantitative easing, it has little choice but to print money and buy foreign bonds, making the franc weaken. In contrast, Japans authorities can undertake quantitative easing by printing money and buying local government bonds as the Japanese government bond market totals a huge $7,000bn. They do not need to use the exchange rate to loosen monetary policy. Japans greater policy scope suggests Tokyo will not shift to a politically contentious exchange rate target for the yen. Instead, Japanese policymakers are likely to continue to intervene periodically in the currency markets while undertaking further quantitative easing measures at home to curb the strength of the yen. Switzerlands shift to announcing an explicit ceiling for its domestic currency seems a step too far for Japan. Mansoor Mohi-Uddin is managing director of foreign exchange strategy at UBS Copyright The Financial Times Limited 2011.

Last updated: October 21, 2011 5:50 pm Yens fresh high raises pressure to intervene

By Jack Farchy

AFP

The yen jumped to a record high against the dollar on Friday as the prospect of further quantitative easing in the US and a lack of resolution to the crisis gripping the eurozone left the Japanese currency as the last mainstream bastion of stability. The yen soared as much as 1.4 per cent to a fresh record of Y75.78 per dollar on the EBS electronic trading platform, according to Reuters, surpassing the previous high of Y75.93 touched in mid-August. Japans currency has rallied 6.5 per cent since the start of the year. It was trading at Y76.12 at about midday in New York.
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Lex Bank of Japan Hot yen leaves Tokyo with cold, hard choices Stabilitymasks headwindsfor Japaneseshares Lex the yen S Korea and Japan boost currency swap deal

The move higher, which follows a period of relative stability, will put further pressure on the Japanese authorities to intervene in order to weaken the currency, which is driving companies to move their operations overseas. On Friday, Japans cabinet announced Y2,000bn ($26bn) of subsidies to encourage companies to keep factories and jobs in the country. We want to help companies overcome the surging yen, Jun Azumi, finance minister, told reporters. The yens surge came as the dollar tumbled amid expectations of further quantitative easing from the US Federal Reserve.

Daniel Tarullo, one of the five governors on the Fed board, said on Thursday the central bank should consider a large-scale programme of purchases of mortgage-backed securities to support the housing market directly. The dollar dropped 0.8 per cent against a basket of the worlds leading currencies to the lowest in more than a month. Bank of New York Mellon, one of the leading currency dealers, has seen outflows of funds from the US dollar since September 30, when Ben Bernanke, Fed chairman, obliquely raised the prospect of a third round of quantitative easing, or QE3. Our suspicion is that this theme of QE3 and US dollar weakness will continue to emerge as the surprise story for the remainder of this year, said Simon Derrick, head of foreign exchange strategy at BNY Mellon. That meant the yen had become the only large currency that investors were still prepared to bet on, analysts said. Beyond the prospect of quantitative easing in the US, the euro has been hobbled by concerns about a Greek default, the Swiss central bank has pledged unlimited intervention to weaken the franc and gold has lost much of its lustre amid sharp price falls and high volatility. Analysts said the only measure likely to weaken the yen was significant monetary policy easing by the countrys central bank. In order to get independent yen weakness, we would probably require the Bank of Japan to move towards quantitative easing. However, this seems less likely, said strategists at BNP Paribas. In a statement that appeared to put pressure on the Bank of Japan to act, the Japanese government on Friday said the central bank was expected to support the governments efforts by underpinning the economy with appropriate and decisive monetary policy management, according to Kyodo, the Japanese news agency.

Bank of Japan Last updated: October 27, 2011 5:09 pm

http://www.ft.com/cms/s/3/be0eb9de-008f-11e1930b-00144feabdc0.html#axzz1ceLAwTB2

Only at the Bank of Japan would a board member voting for a 20 per cent increase in an asset-purchasing programme, as opposed to a 10 per cent increase, be considered a maverick outsider. Disclosures on Thursday showed that former academic Ryuzo Miyao attracted no support at all for his motion to bring the BoJs total assets and easing programme to Y60,000bn ($790bn), from Y50,000bn. Instead, in the third amendment since the programme was launched last October, the BoJ will simply buy an additional Y5,000bn of government bonds. Investors were mostly nonplussed. Equities rallied a little, but by less than the rest of Asia; yields on 10-year JGBs crept up past 1 per cent. Most significantly, though, the yen kept on strengthening against the US dollar. By noon in London it was within a whisker of the postwar high of Y75.75 it hit on Wednesday.
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Hot yen leaves Tokyo with cold, hard choices Yens fresh high raises pressure to intervene Stabilitymasks headwindsfor Japaneseshares Lex the yen S Korea and Japan boost currency swap deal

Easing is certainly in fashion: central banks from Brazil to Russia have cut borrowing costs and Australia may follow suit, after a nicely timed rejig of the inflation basket on Wednesday showed a fall in the rate of price rises. But all this global bearishness merely increases the appeal of yen-denominated assets. In the first nine months of this year, says the Ministry of Finance, overseas money managers bought a net Y14,800bn of short-term debt set for the biggest annual increase on record. Meanwhile, with the US Federal Reserve on hold interminably, the shrinking yield gap between two-year JGBs and US Treasuries identified as a key determinant of the dollar-yen rate by BoJ governor Masaaki Shirakawa has damped dollar demand from Japanese investors.

The yens props, in short, are not falling away. And if the BoJ is reluctant to do anything much about it, the odds on another short, sharp intervention from the Ministry of Finance must surely have shortened. Email the Lex team in confidence at lex@ft.com

The yen: stop moaning October 24, 2011 12:41 pm http://www.ft.com/cms/s/3/f7199e4e-fe2b-11e0bac4-00144feabdc0.html#axzz1ceLAwTB2

It is always a little awkward when a Japanese finance minister moans about the level of the currency, just as exporters post unexpectedly vigorous trade data. Jun Azumi was at it again on Monday, arguing that a strong yen was brutalising the export sector in general, and cars in particular. The warning came as the Ministry of Finance announced that the value of Septembers shipments rose 2.4 per cent from a year earlier, led by motor vehicles (up 5 per cent) and auto parts (up 12 per cent). Then again, the standard MoF line that a low dollar/yen rate is disastrous for Japan has never been well supported by evidence. The briefest of examinations of corporate profits over the past few years, or the countrys trade balance, suggests a much stronger correlation with external demand than with the exchange rate. The effect of a strong currency on domestic risk appetites is not obvious either. The Bank of Japans latest survey of senior loan officers, published on Monday, showed rising demand for loans among both companies and individuals, even as the yen edged towards last weeks record high of Y75.82 to the dollar.
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Lex Bank of Japan Hot yen leaves Tokyo with cold, hard choices Yens fresh high raises pressure to intervene Stabilitymasks headwindsfor Japaneseshares

S Korea and Japan boost currency swap deal

Yet even if the argument is dubious, it could be helpful to make it, if it signals that the MoF is ready to try to steer the yen closer to manufacturers assumptions of Y81.15 for the current fiscal year. As Barclays Capital notes, the third supplementary budget approved last week raised the governments annual ceiling for issuing short-term financing bills its yen-selling war chest to about Y38,500bn ($505bn), almost nine times the amount the MoF sold during its last intervention in early August. The dollar/yen rate, after all, has been unusually steady since then. Identifying the damage done by a strong yen may be difficult, but it is not so hard to see that investors have grown wary of betting against it.

Hot yen leaves Tokyo with cold, hard choices By Lindsay Whipp in Tokyo
Last updated: October 27, 2011 8:45 pm

http://www.ft.com/cms/s/0/e9882546005d-11e1-ba3300144feabdc0.html#axzz1ceLAwTB2
Currency traders are testing the resolve of Japans new finance minister. Jun Azumi has talked the talk of his predecessor. But will he walk the walk and intervene in the markets to weaken the yen? With the Japanese currency having struck a fresh post-war high of Y75.65 against the US dollar on Thursday, strategists say it is likely and it could be very soon. Obstacles that had stood in the way of intervention moves are gradually dissipating. The Ministry of Finance was understood to be keen to see an outcome from the EU debt crisis summit before taking any action.

Another signal market participants had been waiting for was further easing by the Bank of Japan. In line with expectations, the BoJ said on Thursday it would buy an additional Y5,000bn ($65.8bn) of government bonds, or JGBs. And because the past three interventions by the finance ministry have taken place in close proximity to BoJ easing moves, the market is on high alert. Im strongly convinced FX policy is tightly linked to the BoJs monetary policy, says Yunosuke Ikeda, head of FX strategy for Nomura in Tokyo. Theres a good chance the finance ministry could intervene in the markets. Indeed, as if traders wanted to test the MoF further, the yen moved back towards record levels following the BoJs announcement. Some economists and strategists are predicting the yen will continue to strengthen amid haven flows and the growing likelihood of further quantitative easing out of the US. Capital Economics is forecasting the yen to rise to Y70 in 2010 and even reach Y60 in 2013. The low rates environment that has emerged from the financial crisis has led to a narrowing of yield spreads between Japanese government bonds and US Treasuries, making JGBs more attractive and supporting yen strength. But some strategists argue that the BoJ could make any intervention by the MoF more effective by purchasing JGBs of longer maturities. Barclays Capital says that, since the launch of Operation Twist, where the US Federal Reserve has been seeking to drive down yields of longer dated debt, long-running correlations between the dollar-yen and the yield differential between two-year JGBs and US Treasuries has broken down. Instead a new correlation with the 10-year yield gap has emerged, indicating that the 10year yield on JGBs is attracting currency inflows. However, on Thursday the BoJ kept the maturities of its purchases at two years or lower, a move Masafumi Yamamoto, chief currency strategist at Barclays Capital, described as a disappointment as expected. If the BoJ chose instead to target 10-year yields, by driving yields lower, this could have more of an impact in weakening the yen, he says. But the much bigger question of how effective intervention is refuses to go away. Over the medium to long term, Japans three interventions since last September where it

spent a total of Y7,330.3bn have not stemmed the yens rise, although they have provided exporters with opportunities to buy back yen at cheaper rates. Mansoor Mohi-uddin, managing director of FX at UBS, adds that the narrow band in which the yen traded for many weeks before it hit its recent highs was encouraged by the threat of further intervention. Tokyo faces no easy choices. Its position as a G7 member restricts its ability to intervene heavily in the currency markets. However, its politicians still face the grumbles of exporting company chief executives when the yen spikes higher. The one-day shot at intervention is a good point of compromise, says Nomuras Mr Ikeda. It can absorb criticism from the CEO of exporters, but at the same time minimise condemnation from the US by limiting actions to single days. But for some strategists, action needs to be taken sooner rather than later. If the finance ministry does not act on Friday, it could miss the announcement effect of the MoF and BoJ being seen to be co-operating together, says Yuji Saito, a director of FX at Credit Agricole. At the end of the day, unless the BoJ increases its asset purchases enormously, they can have no real impact on yen rates, Mr Saito says. So they have to send the message to the market of co-operation. If Mr Azumi does not act soon, the market will stop believing his talk.

Strong yen weighs on Japanese manufacturers October 3, 2011 3:31 pm By Mure Dickie and Jonathan Soble in Tokyo http://www.ft.com/cms/s/0/c622bd4c-edab11e0-a9a900144feab49a.html#axzz1ceLAwTB2
When the latest-model Toyota Camrys go on sale in South Korea next year, the saloon cars may not be made in Japan Toyotas home base, and the source of its Korea-bound exports until now but 11,000km away at an existing plant in the US state of Kentucky. The carmaker is considering the logistically odd-looking switch, which will involve higher shipping costs, as a response to the yens rise to record highs against the Korean won, the dollar and other currencies, which has made it impossible for Toyota to make money exporting cars from Japan. The companys domestic operations lost Y362bn last year.
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Japanese manufacturers see positive signs Mixed views on tail-risk hedging Japans post-earthquake recovery falters Japans fishing sector seeks to reinvent itself Japan learns to live with strong yen

In recent months rivals Mazda and Nissan have announced plans to build new factories in Latin America without spelling out what that might mean for domestic production. The persistent strength of the yen and a slowing global economy are weighing on the outlook for business in the worlds third largest economy. The Bank of Japans quarterly Tankan survey, released on Monday, showed that sentiment among large manufacturers

such as Toyota turned positive in September for the first time since the disaster, but only barely. Managers expected further improvement in business conditions over the next three months to be small. The economy is recovering, but with the yen continuing to trade so strongly, at 70-80 to the dollar, the recovery is tenuous, said Yasumi Kudo, president of Nippon Yusen, Japans largest shipping company.

Japans manufacturing sector has rebounded far more quickly than expected from the effects of the tsunami, which damaged factories and disrupted parts-supply networks. Industrial production has grown in each of the last five months, and some companies are hiring temporary workers and operating extra shifts to make up for post-disaster slowdowns. Meanwhile, domestic demand should be bolstered by recovery-related spending. The government is preparing its third supplementary budget of the year, expected to be worth around Y12,000bn ($156bn) mostly earmarked for reconstruction of the tsunami-battered north-east coast. Cameron Umetsu, economist at UBS in Tokyo, says the extra spending should add two percentage points to gross domestic product growth in 2012, meaning Japan might well grow faster than any other G7 economy.

Yet because Japan remains highly dependent on exports for growth, it remains vulnerable to the woes currently afflicting the US and eurozone, which are compounded by the yens strength. This is a dangerous time for the global economy and Japan is certainly not immune, Mr Umetsu says. If the US goes into recession, Japan will probably follow. Fears about the possible impact of a global recession on sales of televisions and other consumer electronics pushed shares of Sony, Panasonic and other groups sharply lower on Monday, part of a broader decline for Asian electronics makers. Sony was briefly down 6.2 per cent to a 24-year low. The Tankan, a survey covering 4,000 enterprises, compares the percentage of respondents reporting positive business conditions with those reporting negative views. The index for large manufacturers for September rose to +2, up from the -9 recorded in June and in line with the forecasts of economists polled by news agencies. But expectations for conditions in December scored +4, only marginally better than last month, a finding that reflects uncertainty about the pace of recovery. The Tankan also found sentiment among medium-sized manufacturers remained negative at -3, while the index for small producers although much better than three months ago was still a gloomy -11. In a research note, Capital Economics said such data suggested Japan was at risk of a treble dip with gross domestic product growing in the third quarter of 2011, but returning to decline in the fourth. In our opinion, the only thing that will prevent the economy from slipping back into recession is further policy stimulus. Business groups have welcomed the extra spending but executives complain that the government is giving their concerns short shrift in other areas. On Friday a delegation from the Keidanren business lobby met leaders of the ruling Democratic party to press concerns on taxes and trade. They urged the government to commit to joining the emerging Trans Pacific Partnership trade bloc and to reconsider a proposed corporate tax hike intended to help pay for reconstruction. There are also concerns that a hasty withdrawal from nuclear power following the meltdowns in Fukushima could cause electricity shortages and drive up energy prices. The government is hoping soon to restart dozens of reactors that have been kept shut since the meltdowns in Fukushima, but must still convince wary local politicians.