Yen outlook vs euro clouded by
questions on dollar
02:25 a.m. Jan 04, 1999 Eastern
By Kanta Watanabe
TOKYO, Jan 4 (Reuters) - The euro is expected to
be underpinned against the yen by Japanese investors'
interest in euro-zone securities, but forecasting the
rate is complicated by growing uncertainty over the
dollar, dealers and analysts in Tokyo say.
''The euro is likely to weaken in the short term as we
have already seen a big 'euro boom' prior to its
launch. There is also a possibility that the European
Central Bank will cut interest rates in the near term,''
Yasuyoshi Masuda, a senior economist at Fuji
Research, told Reuters Television.
Masuda said he expected the euro to weaken
towards $1.1 and 125 yen by early spring.
But he said the euro zone's strong economic
fundamentals, including its current account surplus,
were likely to lift the euro to $1.30 and 135 yen by
the end of 1999. The euro stood at $1.1873/76 as of
0600 GMT in Tokyo, after starting official trading at
$1.1747 earlier in Sydney.
It was trading at 134.73 yen, compared with 132.80
yen last Thursday when the European Union set
irrevocable locking rates for the 11 currencies in the
zone.
Japanese investors, who have been inclined to invest
in U.S. securities, could shift a large amount of their
money towards the euro, Shinji Yamada, senior
manager of international treasury at Fuji Bank, told
Reuters Television.
''(The euro) would offer greater liquidity and stability,
thus enabling investors (investing in the euro zone) to
simplify their foreign exchange risk management,''
Yamada said.
Yamada said he expects the euro to trade firmly
between 130-150 yen and $1.20-1.30 over the next
six months. Others were more cautious about the
outlook for the new currency.
''I think the initial boom (in Japan) to buy European
securities is already over,'' Toshiya Kirino, a fund
manager at NCG Investment Trust, told Reuters
Television.
''But if, after a while, more people become convinced
that the euro would become a strong currency, then
we could start seeing more fund flow (into the euro),''
he said.
Japan's bleak economic fundamentals did not justify
significant yen gains, but growing concerns over
possible across-the-board dollar weakness made the
euro/yen rate difficult to predict, analysts and dealers
said.
''We are looking for a possible shift in the U.S.'s
strong dollar policy. A narrowing of the U.S.-Japan
interest rate gap is also expected to become a
pro-yen factor in the January-March quarter,'' Hiroshi
Fujioto, manager of the international treasury
department at Industrial Bank of Japan, told Reuters
Television.
The interest rate gap between the benchmark 10-year
Japanese government bond and the 10-year U.S.
Treasury note stood at around 268 basis points on
Monday, compared with around 352 basis points in
early December.
Fujioto said he saw a possible fall in the dollar to as
low as 95 yen, but the dollar could find a floor at that
level as there was likely to be coordinated currency
intervention by the United States and Japan below
100 yen.
The dollar stood at 113.45/48 yen at 0600 GMT on
Monday, compared with 112.77/80 in early Tokyo
trade.
''International money flow into the United States
started to decrease in the middle of last year. If this
money flow drops decisively or if there is even a
repatriation of funds from the U.S., then we would
need to worry about a possible dollar crash,'' Fuji
Research's Masuda said. ''I hope the birth of the
euro would not become the trigger of that,'' he added.
((Tokyo Treasury Desk 81-3 3432 9780
tokyo.newsroom+reuters.com))
Copyright 1999 Reuters Limited. |
