Dollar Declines vs Yen on Concern Over Rising Japanese Govt Bond Yields
Dollar Slips vs Yen on Rising Japanese Government Bond Yields
Tokyo, Feb. 15 (Bloomberg) -- The dollar slipped against the
yen for a second day on concern the Bank of Japan's unexpected
cut in Japanese short-term interest rates Friday won't be enough
to drive down bond yields and weaken the yen.
Japan's central bank Friday lowered its target overnight
loan rate between banks to a record-low 0.15 percent from 0.25
percent, aiming to stem a surge in bond yields. Yet the bank
decided not to increase the amount of government bonds it buys on
the secondary market without repurchase agreements.
''The BOJ action was surprising, but I'm afraid the impact
(on bond yields) will be small,'' said Ryuichi Takami, a foreign
exchange manager at Sanwa Bank Ltd. ''So the yen may rise.''
The dollar was quoted at 113.96 yen, down from 114.24 yen in
late New York trading Friday. The euro was quoted at $1.1282,
down from $1.1308 in New York.
The Bank of Japan took action after the yield on Japan's
benchmark No. 203 government bonds maturing in 2008 tripled since
early October, reaching as high as 2.085 percent Friday. Rising
yields could derail economic recovery by boosting interest rates
on everything from corporate bonds to mortgages.
The ruling Liberal Democratic Party had pressured the
central bank to buy government bonds. Bank of Japan Gov. Masaru
Hayami, who has repeated that buying government bonds would hurt
the bank's fiscal health and erode trust, said Friday the bank's
nine-member policy board was unanimous in opposing the proposal.
The dollar reached 115.80 yen immediately after the central
bank cut short-term interest rates, a move that would make yen-
denominated deposits less attractive. The currency soon lost its
steam to trade as low as 113.86 yen by late Friday. And the
benchmark bond yield today rose to 2.11 percent.
Little Influence
''I'm afraid the BOJ action will have little influence on
long-term interest rates,'' said Mikiyasu Yuasa, a foreign
exchange manager at Bank of Tokyo-Mitsubishi Ltd. ''Also we can't
deny that Japanese exporters and other companies may sell dollars
ahead of their book-closing (on March 31).''
Yuasa said the dollar is likely to trade between 113.50 yen
and 115.50 yen this week.
Rising long-term interest rates could boost returns on yen-
denominated investments, helping the yen. Yet a stronger yen
harms the Japanese economy by making Japanese exports more
expensive and less competitive abroad.
Traders said Japan may buy dollars to stem the yen's rise to
nurture a recovery of the economy, which is forecast by the
government to grow 0.5 percent in the year starting April 1 after
shrinking 2.2 percent in the current year.
''The dollar definitely won't fall below 112 yen because of
expectations for Japan's intervention,'' said Hiroshi Sakuma, a
foreign exchange manager at Barclays Bank PLC. The dollar will
probably trade between 113 yen and 115 yen this week, he added.
The Finance Ministry last asked the Bank of Japan to step in
the currency market and buy dollars on Jan. 12, the day after the
U.S. currency sank to a 28-month low of 108.22 yen. Since then,
the dollar hasn't traded below 111 yen.
''The yen has limited room to rise,'' said Takayuki Togawa,
a foreign exchange manager at Tokai Bank Ltd. ''I suspect Japan
and the U.S. will work together not to let the yen top 110 to the
dollar. The U.S. is concerned about the Japanese economy, and if
Japan's collapses, that could roil U.S. financial markets.''
Japan's Surplus
The dollar was little changed after Japan said its current
account surplus in December fell 10.4 percent from November to a
seasonally adjusted 1.1647 trillion yen ($10.2 billion) while it
grew from a year earlier by 13.3 percent. Traders said they paid
little attention to the report.
The current account is the broadest measure of trade in
goods and services. Economists polled by Bloomberg News had
forecast Japan's current account surplus in December probably
rose 8.2 percent from November to a seasonally adjusted 1.4067
trillion yen while it grew 18.2 percent from a year earlier.
In other trading, the dollar was quoted at 1.4160 Swiss
francs, unchanged from late New York trading Friday. The British
pound was quoted at $1.6322, down from $1.6349 in New York.
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