For the first time in a while I think Japan may indeed spend few "extra" yens on gold..sure would look like smart move...
Yen seen damaged by China, Taiwan reserves move
06:31 a.m. Aug 20, 1998 Eastern
By Pratima Desai
LONDON, Aug 20 (Reuters) - A decision by China and Taiwan to reduce the yen portions of their foreign exchange reserves is a significant development which will weigh on the yen and possibly boost the euro in the longer-term, analysts said.
Last week, China and Taiwan said they had cut back their yen-denominated holdings to protect the value of their foreign exchange reserves, adding to the arguments of yen bears, who have already driven it to eight-year lows against the dollar.
''It is important as a signal of things to come. There was a negative yen reaction after China switched some of their reserves, '' said Nick Shamim, currency and bond analyst at ANZ Investment Bank.
''The next big blow to the yen's reserve currency ambitions will be central banks, including those in Asia, warming to the idea of using euros in their portfolios.''
The euro will be the new currency of the 11 founder countries of European economic and monetary union when it starts in January 1999.
Perceptions that the euro will be a strong and safe store of value will convince many central banks around the world to hold a proportion of their reserves in Europe's new currency, many analysts believe.
China has now cut its yen holdings to below a quarter of the government's portfolio from just under a third. Taiwan has declined to specify the extent of reductions.
China is the world's second largest holder of foreign reserves, Japan is the first.
Analysts said some of the fall in yen reserves is an arithmetric result of erosion in the value of Japan's currency.
But they also believe many central banks around the world have been for some time reducing their yen holdings.
''This trend of shifting from yen reserves has been in place for some time,'' said Rob Hayward, economic advisor at Bank of America. ''It makes sense to reduce your exposure to a currency you think has further to fall, some see it as an opportunity to buy it back cheaper at a later date.''
Many currency strategists expect dollar/yen to rise to 150. Shamim at ANZ Investment Bank sees the U.S. currency topping out at 160 yen.
The dollar, which reached a post-World War Two low just below 80 yen in April 1995, has risen by more than 80 percent, last week when it touched an eight-year high above 145.60.
In the same time period the mark has gained more than 35 percent. Last week it saw a 5-1/2 year high at 82.80 yen, and is currently trading around 80 yen.
A gloomy outlook for the Japanese economy, now officially in recession after years of stagnation, has been the biggest factor behind the yen, analysts said.
Copyright 1998 Reuters Limited. |
