Exchange Rate Dollar

Markets overvaluing yen, Japan finance minister warns

TOKYO (Kyodo) -- Currency markets have overvalued the yen, Japanese Finance Minister Yoshihiko Noda warned Tuesday, while declining to comment on Tokyo's possible intervention to weaken the currency and protect domestic industries.

The Bank of Japan, which will hold a policy meeting later this week, came under pressure from the government to ease monetary conditions further as some lawmakers insisted the central bank should boost the economy in a way that could also work to curtail the yen's advance.

"It is desirable that the markets reflect (economic) fundamentals," Noda told reporters, apparently referring to the difficulty facing Japan's economy following the March earthquake and tsunami. "The yen is greatly overvalued and continues to show one-sided moves."

The minister also said he "cannot make any comment on currency interventions," adding that "we will closely watch the markets today as well," while indicating that Japanese financial authorities have continued to consult with other countries over developments in the markets.

Chief Cabinet Secretary Yukio Edano also voiced strong concern over "the current weakness of the U.S. dollar" and said that the government is paying attention to its moves.

The top government spokesman, however, told a news conference that he would not comment on the possibility of Japan intervening in the markets.

National policy minister Koichiro Gemba called for additional easing of monetary policy by the BOJ.

"If the yen's rise continues, then we need a response that would involve monetary policy," Gemba, also the policy chief of the ruling Democratic Party of Japan, told reporters.

The BOJ is to hold a two-day policy meeting starting Thursday, and analysts say the bank could decide on expanding its 40 trillion yen asset purchase program, under which it attempts to ease credit conditions by purchasing such financial assets as government bonds, corporate debt and exchange-traded funds.

Also widely seen as a possible additional easing step would be the central bank's not absorbing from the banking system a huge amount of funds that would be left by a government intervening and selling the yen in the markets.

The dollar fell to 76.29 yen overnight in New York within a whisker of the postwar record of 76.25 yen reached just ahead of the March joint intervention by the Group of Seven leading economies, including the United States and Japan.

Noda said the government acknowledges that Japanese exporters, particularly carmakers and high-tech firms, have raised concerns about the government's inaction in the face of the yen's steep rise, which erodes their global competitiveness.

Foreign Exchange Rates : Currency Predictions - GBP, USD, EUR, AUD ...

POUND STERLING

This morning’s UK Purchasing Managers Index Manufacturing survey showed that the number of respondents who are negative about the prospects for the UK manufacturing sector outweighed those who are positive, causing selling pressure on Sterling. If tomorrow’s PMI construction figure also disappoints, the Pound may trend lower against the other majors. NEAR-TERM OUTLOOK – NEUTRAL TO NEGATIVE.


US DOLLAR – The Pound Dollar exchange rate (GBP/USD) is 1.6369

President Obama’s overnight announcement that a compromise deal has been reached between Democrat and Republican policy-makers on how to tackle the US’s giant debt has caused a forward move in global appetite for risk. This improved risk sentiment has stopped the Greenback moving forward in the market, but further news of European debt woes could cause safe-haven support for the Dollar. NEAR-TERM OUTLOOK – NEUTRAL.


EURO – The Pound Euro exchange rate (GBP/EUR) is 1.1362

Europe’s single currency has held up well on the day so far, in spite of leading ratings agency Moody’s announcement on Friday afternoon that it was reviewing Spain’s debt rating. With this morning’s German and whole-of Eurozone PMI Manufacturing surveys printing at almost exactly the expected levels, support from the Euro has been caused by speculators anticipating a tightening of monetary policy by the European Central Bank later in the week. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE.


AUSTRALIAN DOLLAR – The Pound Australian Dollar exchange rate (GBP/AUD) is 1.4814

The Australian Dollar has surged forward on the day as appetite for risk flows back into global markets thanks to President Obama’s announcement of a US Debt Deal. However, last night’s Chinese PMI Manufacturing data, which highlighted a further slowing in the growth of China’s key manufacturing output, may dampen the Aussie’s move forward. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE.


SOUTH AFRICAN RAND – The Pound South African Rand exchange rate (GBP/ZAR) is 10.9145

South Africa’s domestic stock market is enjoying its first day of gains for five sessions today as appetite for risk returned to global markets. Mining stocks fared particularly well, causing the Rand to strengthen and taking the GBP ZAR rate lower by over 0.50% by the start of Europe’s afternoon session. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE.


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