THE dollar lost ground against the yen in Asian trading yesterday as another steep fall in Japanese equities boosted investor appetite for bonds, extending a trend last Thursday that led the currency pair to its biggest weekly drop in a year.
Report by Reuters
The greenback last bought 100,96 yen after choppy trade that saw it climb as high as 101,82 in the early morning session and as low as 100,79 as the Nikkei dropped 4%, though it later narrowed its losses.
However, the dollar managed to hold just above Friday’s trough of 100,68 yen, with support at 100,38, the Kijun line on its daily Ichimoku chart. Market participants said a new trend was unlikely to develop on Monday as both US and UK markets are closed for holidays.
Last week, the dollar lost 1,9% against the yen. The pullback began on Thursday, when poor Chinese data prompted investors to jolt the Nikkei off a five and a half-year high and scramble for safety to Japanese bonds.
I think that the Nikkei’s moves at the moment are more driven by day traders rather than macro data . . . the Japanese market has become like a toy,” said Makoto Noji, senior strategist at SMBC Nikko Securities.
“I think forex traders are more likely to act on the macro data, especially US data. That’s really about whether the Fed will exit QE3 or not.”
Yen buying pressure at the end of last week helped to pause the dollar’s broad gains in the previous fortnight, which were driven by expectations that the US Federal Reserve may wind down its bond-buying program earlier than scheduled.
On Monday, the dollar index .DXY dipped 0,1% to 83,683 after dropping 0,7% last week, when Fed Chairman Ben Bernanke told Congress the central bank will not reduce its easing unless the economy showed further signs of improvement.
Japan’s central bank, on the other hand, may be expected to ramp up its already aggressive easing program if its economic indicators do not pick up, said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.
“A lot of people will be focusing on Friday’s consumer price index data after one BOJ member said the 2% target looks a bit difficult to achieve,” she said, referring to minutes from the BOJ’s last policy meeting released yesterday.
Friday will see the release of a raft of Japanese data, including household spending, unemployment figures and industrial output.
The euro edged 0,1% off Friday’s late US levels to $1,2929 after rising 0,7% last week, its first weekly gain in three weeks, supported by signs of improvement in German business morale on Friday.