JPY 01 (May 08 - Oct 11)

[HengHeng]

May 16 (Bloomberg) -- The Bank of Japan will probably keep interest rates on hold next week after it slashed its growth estimate and shelved a two-year policy of seeking higher borrowing costs.

Governor Masaaki Shirakawa and his six colleagues will leave the overnight lending rate at 0.5 percent at a two-day meeting concluding May 20, according to all 35 economists surveyed by Bloomberg News. The rate is the lowest among major economies.

Shirakawa this week said the central bank is focusing on the risk that growth will falter because of a weakening global economy, financial-market turmoil and rising commodities costs. Japan's expansion cooled last quarter, a government report is expected to show today, and the slowdown is likely to deepen.

``The Bank of Japan has explicitly signaled a shift to a neutral policy stance, and interest rates will probably stay on hold all through the year'' ending March 31, said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. ``Concerns about the global financial system persist and the U.S. economy has yet to hit bottom.''

Recent reports support the central bank's assessment that the world's second-largest economy is losing momentum.

Japan's gross domestic product slowed to an annualized 2.5 percent in the three months ended March 31 from a 3.5 percent pace in the fourth quarter, according to the median estimate of 32 economists surveyed by Bloomberg. The Cabinet Office will release the report at 8:50 a.m. in Tokyo.

Slowing Exports

Exports rose in March at the slowest pace in almost three years and shipments to the U.S. declined for a seventh month. Production fell at the fastest pace in at least in five years.

Record oil prices and costlier raw materials are squeezing profits and eroding household incomes, discouraging companies and consumers from spending. Machinery orders, a harbinger of business investment in the next three to six months, fell 8.3 percent in March, more than economists estimated.

``Given the outlook for slowing exports and capital investment, Japan's GDP growth may slow to close to zero percent in the three months ending June,'' said Tetsufumi Yamakawa, a former central bank official and now chief Japan economist at Goldman Sachs Group Inc.

The policy board dropped a call for gradual rate increases in its twice-yearly outlook on April 30 and cut its estimate for this fiscal year's expansion to 1.5 percent from 2.1 percent. It said consumer prices excluding fresh food will climb 1.1 percent, raising its inflation projection from 0.4 percent.

Only two of 31 economists who gave predictions through December said the bank will raise rates this year. The remaining 29 expect no change.

Rate Increases

Under Toshihiko Fukui, Shirakawa's predecessor, the central bank ended its deflation-fighting policy of pumping extra cash into the economy in March 2006 and raised borrowing costs from near zero to 0.25 percent four months later. The benchmark rate was doubled in February 2007 and has been on hold since.

Fukui and other policy makers had repeated that rates need to be raised gradually as long as the economy keeps growing and prices remain stable. While the April outlook report excluded that language for the first time in two years, it retained a warning that keeping rates low could cause excessive investment and hamper growth in the long run.

``The bank signaled the normalization of interest rates is on hold temporarily,'' said Teizo Taya, a former central bank board member and now adviser to Daiwa Institute of Research. ``It will resume once the uncertainty over the economy subsides.''

Shirakawa said this week that the bank must also pay attention to the ``upside'' risks that overseas economies and markets will improve more quickly than anticipated. Japan's rates are ``very low'' given the economy's strength, he said.

The bank will announce its rate decision on May 20 in Tokyo, probably by early afternoon. It will publish its monthly assessment of the economy at 3 p.m. and Shirakawa will speak at a news conference at 3:30 p.m.

[winston]

Bank of America Lowers Yen Forecast on Hawkish Fed, ECB Stance
By Stanley White and Kazumi Miura

June 11 (Bloomberg) -- Bank of America Corp. lowered its forecast for the yen as the Bank of Japan will suggest borrowing costs are appropriate while U.S. and European policy makers signal they may raise interest rates.

The yen is also likely to weaken as stock market gains show investors' risk appetite is improving, said Tomoko Fujii, head of economics and strategy for Japan at Bank of America, confirming a report released yesterday. Japanese investors may invest as much as 300 billion yen ($2.8 billion) overseas as companies pay summer bonuses in the next two months, the report said. The currency will fall to 108 per dollar by Sept. 30 versus a previous forecast of 105, the report said.

``Japan's economic growth in the second quarter could be zero or show a negative number, so the BOJ should remain neutral,'' said Tokyo-based Fujii in an interview. ``Market reaction to rate hike expectations is stronger for the dollar and the euro.''

The yen fell to 107.69 against the dollar at 2:50 p.m. in Tokyo from 107.44 late yesterday in New York. Japan's currency may decline to 108.40 this month, which is near its average price for the past 200 days, Fujii said.

Monetary Policy

BOJ Governor Masaaki Shirakawa will maintain a neutral stance at a two-day policy meeting ending June 13 due to growing risks that consumer prices rise while the economy slows, the report said. Japan's central bank will keep rates on hold at 0.5 percent this week, according to the median estimate in a Bloomberg News survey.

Federal Reserve Chairman Ben S. Bernanke said on June 9 the central bank will ``strongly resist'' an erosion of longer-term inflation expectations, prompting traders to increase bets the Fed will lift its 2 percent benchmark rate. European Central Bank President Jean-Claude Trichet said on June 5 that policy makers may raise rates next month from 4 percent.

Japan's broad Topix index of shares is up 14 percent since the start of the fiscal year on April 1, showing investors' appetite for risk isn't deteriorating, the Bank of America report said. The yen rose to a 12-year high against the dollar in March as a global sell-off in stocks and widening credit losses prompted traders to pare riskier purchases of assets funded with Japan's currency

[winston]

Bloomberg: Yen falls to record low against euro

“The yen fell to a record against the euro on speculation the European Central Bank will boost interest rates and as Japanese workers prepare to spend their summer bonuses on overseas assets offering higher yields.

“Japan’s currency slid for a third day as ECB President Jean-Claude Trichet said on CNN there may be a ‘small increase’ in rates, while the Bank of Japan will likely keep borrowing costs on hold. The dollar traded near the weakest level in more than two weeks against the European common currency as investors raised bets the Federal Reserve will hold off lifting rates.

“‘The yen is going to continue to fall because the Bank of Japan has made it clear it isn’t going to raise rates anytime soon,’ said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp.

“The yen may decline to 174 per euro [from 169.46] and 110 to the dollar [from 107.70] in the next three months, Mellor said.”

Source: Lukanyo Mnyanda and Stanley White, Bloomberg, June 26, 2008.

[winston]

The Next Big Bubble to Burst By Dr. Steve Sjuggerud

Mrs. Watanabe is about to get burned.

She's in a situation like the Miami condo "flipper" who found himself with the maximum amount of debt at precisely the wrong time a few summers ago. Or the dot-com day trader who was trading stocks on margin back in 2000 and got slaughtered.

It will end badly, without a doubt. The only question is when. Here's the story...
In Japan, housewives handle the money. In the past, they've been conservative. They haven't bought stocks or real estate... and that's actually been the right call in Japan. But now they're in trouble...

It all started innocuously enough. Bank accounts in Japan pay next to no interest. But in Australia, bank accounts earn 6% interest. Japan's housewives understood that Australia's a fairly safe place to stash your money. So they started putting their money in Australian bank accounts.

This simple strategy really paid off.

Not only did they earn a lot more interest... the Australian dollar soared versus the Japanese yen, nearly doubling from 2000 to 2007. So when the Japanese housewives converted their money back into yen, the profits were huge!

From late 2000 to mid 2007, it was easy money... The yen/Aussie trendline was nearly a straight shot – you couldn't lose.

Again, the Japanese housewives are typically conservative. But after seven years of near-uninterrupted success, they decided simply tripling their money wasn't enough...

So their brokers told them about leverage.

"Mrs. Watanabe" (the typical Japanese housewife, like "Mrs. Smith" in the States) started buying Australian dollars on margin... In other words, she now borrows money to make this trade.

"How can I go wrong?" she thinks. She's borrowing in Japan at essentially a 0% interest rate and investing in Australia, earning over 7% today. It all works out great... as long as the Aussie dollar keeps getting stronger versus the yen.

But this is the problem...

When she first entered the trade at the beginning of this decade, it was a good trade. The yen was severely overvalued, and the Aussie dollar was cheap. But those days are gone. Now, the yen is the cheapest major currency in the world. And up until recently, the Aussie dollar was as expensive as it's ever been.

Meanwhile, Mrs. Watanabe is in deep... Advertisements for currency trading margin accounts on Tokyo's subway lines offer low fees, tight spreads, and get this – leverage as much as 200 times the down payment. And the number of these "forex" accounts held in Japan nearly doubled last year, increasing 92%!

The trade appears to have ended last summer. Since then, the yen has been creeping up against the Aussie dollar. But Mrs. Watanabe isn't pulling back. Instead, she has decided to take on more risk – she's now buying what are known as "Uridashi bonds."

Companies in countries other than Japan issue Uridashi bonds... which are simply foreign bonds sold to Japanese investors. So now, instead of putting money in the bank in safe countries like Australia, she's buying bonds in Africa, Brazil, and Turkey.

I'm not joking! Mrs. Watanabes across Japan have snapped up an astounding $650+ million worth of South African rand-denominated Uridashi bonds this year.

What can go wrong? Oh, boy... Mrs. Watanabe is blinded by the interest rate – she can earn double-digit interest rates in these wild places. So the normally prudent Mrs. Watanabe is now overleveraged... in risky investments... at precisely the wrong time!

Mrs. Watanabe – and her kind – will be the next bubble to burst.

As the yen continues to inch up, all these Japanese housewives will have to close out their margin accounts, selling billions of Aussie dollars and other Uridashi currencies. As the billions of dollars of leverage unwind, the Japanese yen could soar – particularly against the "high-yield" currencies.

Right now, Mrs. Watanabe is selling something super cheap (the yen) to buy something super expensive, like the Aussie dollar. And she's borrowing money to do it.

Source: Daily Wealth

[millionairemind]

Yen Heads for Weekly Gain as Lehman Slump Curbs Carry Trades
By Stanley White and Ron Harui

Sept. 12 (Bloomberg) -- The yen headed for its third weekly gain against the euro as shares in Lehman Brothers Holdings Inc. plummeted, prompting sales of higher-yielding assets funded with cheap loans in Japan.

The yen is trading near two-year highs versus the Australian and New Zealand dollars on concern about Lehman's capacity to raise capital after posting a record loss. U.S. officials are helping Lehman find a buyer, a person familiar with the matter said. The dollar rose to the strongest in a year against the euro yesterday on evidence the economic slump that started in the U.S. has spread to the rest of the world.

Full story
http://www.bloomberg.com/apps/news?pid= ... r=currency

[winston]

Bloomberg: Yen unbeatable as credit seizure kills carry trades

“The same credit market collapse that drove Lehman Brothers into bankruptcy and sent bank borrowing costs in Europe to record highs is making the yen unbeatable.

“Japan’s currency was the best-performer in September and the only currency to appreciate against the dollar. Deutsche Bank AG, the biggest trader of foreign exchange, says the yen will rise 5% in coming months. New York-based Morgan Stanley is telling clients to buy the currency versus the euro and pound.

“After seven years of providing the cheapest source of funds for investors buying higher-yielding New Zealand dollars, Australian dollars and Brazil reais, the yen is appreciating as $584 billion of subprime mortgage-related losses force banks to restrict credit. It strengthened 4.4% on a trade-weighted basis in September, according to the Bank of Japan’s effective exchange rate, the most since August 2007, when the seizure in capital markets began.

“‘We are in a multi-year trend reversal,’ said Paresh Upadhyaya, a senior vice president at Putnam Investment in Boston. ‘We are going to see a global central bank easing cycle. The yen is the place to be in this environment of economic slowdown and heightened volatility.’”

Source: Ye Xie, Bloomberg, October 6, 2008.

[millionairemind]

G-7 warns against strengthening yen as financial turmoil deepens
By Bettina Wassener Published: October 27, 2008

HONG KONG: The Group of 7 finance ministers and central bank governors issued a joint statement on Monday saying they were "concerned about recent excessive volatility in the yen's exchange rate," a rare statement in support of a single currency that could signal that intervention in the currency markets may be in the offing.

The statement from the Group of 7, and a surprise rate cut in South Korea, highlight the depth of concern over the financial turmoil, which has wreaked havoc not only in the debt and stock markets, but also in the currency markets, where the yen has appreciated massively over the past few months, while the euro and won have dived.

The statement, which said the Group of 7 would "monitor the markets closely and cooperate as appropriate," came as countries around the region, spooked by the relentless sell-offs in the stock markets and a particularly dire day on Friday, scrambled to support their economies on Monday.

[millionairemind]

Yen strength continues
Global finance ministers hint at intervention citing 'excessive volatility' in Japanese currency.

NEW YORK (CNNMoney.com) -- The Japanese yen continued to rise Monday and the dollar held firm against other currencies despite signs that a government intervention in the currency market may be on the horizon.

In early New York trading, the dollar fell to ¥92.87 from ¥94.63 late Friday. On Friday, the yen drove the dollar to a 13-year low of ¥91.10 during the day.

The euro traded at $1.2464, down slightly from $1.2586. And the British pound fell to $1.5455 from $1.5904.

Recent turmoil in the world's financial markets and concerns about a global recession have driven investors away from high-yielding currencies such as the euro and the pound. As a result, lower-yielding currencies such as the dollar and the yen have surged in value because they are considered by many investors to be a safe-haven.

Japan's yen has been the main beneficiary of the market's recent aversion to risk.

The yen has been supported by reversals in the so-called carry trade. Investors often borrow yen to fund investments in higher-yielding currencies. When those currencies weaken, and investors reverse their positions, they are forced to buy back the yen, raising its value.

But the yen's sharp rise has alarmed finance ministers from the Group of Seven major industrial countries who say it could be a threat to economic stability.

"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," the G-7 finance officials said in a joint statement Monday.

While the statement said the G-7 will continue to "monitor markets closely" and will "cooperate as appropriate," it stopped short of saying the group will immediately intervene.

Still, the G-7 statement has many investors in the currency market "hedging their bets," said Steve Malyon, currency analyst at Scotia Capital in Toronto.

"The market is now wondering whether there might be a coordinated intervention to stabilize currency markets," Malyon said.

Malyon said such an intervention could involve "some form of yen selling" and could also be aimed at strengthening the dollar.

Currency traders will also be keeping a close eye on global stock markets and will be watching the world's central banks for signs that another coordinated rate cut is in the works, Malyon said.

Investors are expecting the Federal Reserve to cut interest rates by one-half percentage point when the central bank meets this week, according to futures on the Chicago Board of Trade

[mocca_com]

Yen Rises on Speculation G-20 Will Fail to Boost Global Economy

By Stanley White

Nov. 14 (Bloomberg) -- The yen rose against the dollar and the euro on speculation a Group of 20 nations summit will fail to reach a consensus on how to kick start the global economy.

The yen also advanced against the Australian and New Zealand dollars as uncertainty about the outcome of the meeting prompted traders to pare purchases of higher-yielding assets. The dollar may fall for a second day against the euro before a report that may show U.S. retail sales declined by the most since the 2001 recession.

``I'm looking for the yen to strengthen against the dollar,'' said Takeshi Tokita, vice president of foreign- exchange sales in Tokyo at Mizuho Corporate Bank, a unit of Japan's second-largest publicly traded lender. ``No one is sure what will come out of the G-20. It's likely that the U.S. and Europe won't see eye to eye on many of the problems the global economy is facing.''

The yen rose to 97.10 per dollar as of 9:53 a.m. in Tokyo from 97.68 late yesterday in New York. Against the euro, it was at 123.99 from 124.78. The euro was little changed at $1.2772. The yen may fall to 95.50 today, Tokita said.

Heads of state from the G-20 nations gather in Washington today for two days of talks on how to tackle the global economic crisis sparked by a seizure in credit markets and losses on mortgage derivatives.

U.S. President George W. Bush yesterday urged leaders of the world's biggest economies not to abandon free-market capitalism. G-20 leaders including Australian Prime Minister Kevin Rudd and French President Nicolas Sarkozy have used the crisis to demand greater government control of markets and to attack the U.S. for failing to rein in investors and speculators.

Under debate are proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks and subjecting credit-rating companies to stiffer oversight.

To contact the reporter on this story: Stanley White in Tokyo at [email protected].

Last Updated: November 13, 2008 20:00 EST

[iam802]

Too lazy to post the chart.

But, I saw USD strengthening against JPY.

Same behaviour for SGD/JPY as well.

Let's hope JPY will continue to lose momentun and turn downwards