Yen Surges Against Dollar, Euro as Foreign Investors
Buy Japanese Stocks
By Malcolm Foster
Yen Extends Gains as Investors Buy Japanese Stocks (Update2)
(Adds comments from traders in 3rd paragraph, 2nd section.)
New York, July 19 (Bloomberg) -- The yen staged its biggest
rally against the dollar in 5 1/2 months amid a growing appetite
for Japanese securities and the currency to buy them.
Since early June, traders have been hesitant to push the yen
too high on concern the Bank of Japan would intervene to sell its
currency. That reluctance subsided today, with traders sending
the yen up more than 2.7 percent at one point.
''This has been a wild one,'' said Mark Gargano, chief
trader at First Union Corp. in Charlotte, North Carolina.
''Everyone kept thinking the BOJ would come in, but it hasn't.''
Some traders said the central bank may have held off from selling
yen because tomorrow is a national holiday in Japan.
Late in New York trading, the yen was at 118.30 per dollar
from 120.99 Friday. Earlier, it strengthened more than 3 yen to
117.73, its strongest level since June 10, when the Bank of Japan
intervened to sell yen in the first of five rounds.
The euro rebounded against the dollar, rising to $1.0296
from $1.0200 Friday. The single currency, which had fallen as low
as $1.0124 earlier, bounced higher when it climbed back to $1.02,
setting off automatic buy orders, traders said. The euro's rise
also helped lift the British pound and Swiss franc more than 1
percent against the dollar.
''A hedge fund had a stop-loss order triggered,'' said Tom
Benfer, director of foreign exchange at Bank of Montreal. ''It
must have been a sizeable order'' to cause such a large move.
The Bank of Japan has tried to cap the yen's gains because a
stronger currency hurts Japan's exports, which are one of the
only bright spots in the economy.
Nikkei Rises
Encouraged by signs Japan's economy is starting to grow,
foreign investors, have snapped up stocks in recent months,
helping push the benchmark Nikkei 225 stock index up 33 percent
since Jan. 1. Today it rose to 18,532, its highest level since
Sept. 10, 1997.
Non-Japanese investors bought a net 1.103 trillion yen of
stocks in June, more than triple the amount bought in May,
according to Ministry of Finance figures.
''There's persistent demand for Japanese stocks,'' said
Keisuke Aso, manager of trading at Bank of Tokyo-Mitsubishi.
''That shows strong expectations of a Japanese recovery.''
Haruhiko Kuroda, Japan's vice finance minister for
international affairs, said today that ''cooperation on foreign
exchange among G-7 countries remains firm,'' suggesting that the
Group of Seven industrialized nations -- the U.S., U.K., France,
Germany, Italy, Canada and Japan -- understand Japan's policy of
intervening in the currency market to stem the yen's rise.
''People that were long dollars expected the BOJ to come in,
but (the BOJ was) nowhere to be found,'' said Grant Wilson, a yen
trader at Mellon Bank in Pittsburgh. ''It's a holiday in Japan
tomorrow. Is the BOJ going to come in? I don't know how
successful intervention will be.''
Deterrent
Some traders speculated the U.S. doesn't welcome Japan's
repeated interventions since U.S. Treasury Secretary Lawrence
Summers said July 7 that Japan should focus on boosting growth by
raising domestic demand, not by manipulating currencies. That
disapproval could be deterring the Ministry of Finance from
ordering intervention again, traders said.
The euro fell in earlier trading after Herbert Hax, one of
five economic advisers to the German government, known as the
''wise men,'' told the Welt am Sonntag newspaper that the euro's
decline below $1.00 would not represent ''a serious alarm
signal.'' His remarks follow those of fellow ''wise man'' Horst
Siebert, who said Wednesday that the single currency could drop
to 90 U.S. cents.
The European Central Bank isn't likely to dip into its $245
billion of currency reserves to buy euros, or to raise interest
rates to help defend the euro, traders said. Higher interest
rates typically boost demand for a currency by raising the return
on deposits.
ECB Rates
ECB board member Eugenio Domingo Solans told the Spanish
newspaper El Mundo that ''neither the evolution of money in
circulation nor inflation forecasts lead to the conclusion that
the current interest rate needs to be changed.'' The ECB cut its
benchmark rate to 2.5 percent on April 8 to aid economic growth
and has since left it untouched.
Evidence of slowing growth in Germany and Italy has pulled
the euro down since Jan. 1, making it the fourth-worst performer
against the dollar of the world's major currencies this year. It
has failed to get a boost from recent reports showing brightening
German growth prospects, and has dropped 12 of the last 16 days.
Tomorrow, a survey from the Ifo economic research institute
is likely to show German business optimism improved for a second
consecutive month in June, analysts said.
''The economy will accelerate and prospects are good,'' said
Conrad Mattern, a currency analyst at DG Bank in Frankfurt. The
Ifo survey ''is one more piece of the picture showing that
prospects are brighter'' for the euro bloc's largest economy.
Australian Dollar Slides
In other trading, the Australian dollar suffered its biggest
decline in five months amid concern a stronger yen could choke
off Japan's recovery and undermine demand for Australia's
exports.
''Anything that's bad for Japanese growth is bad for the
Australian dollar,'' said Sean Callow, a currency analyst at
I.D.E.A. in London. In midday trading in New York, the Australian
dollar fell to its lowest level in a month, dropping 1.5 percent
to 65.05 U.S. cents from 66.05 cents late Friday.
Elsewhere, the British pound rallied to $1.5798 from $1.5623
Friday. The U.S. dollar fell to 1.5573 Swiss francs from 1.5757
francs and climbed to 1.4902 Canadian dollars from 1.4828.
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