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Yen Has Biggest Gain in Four Months After BOJ's Tankan Survey
Dec. 14 (Bloomberg) -- The yen had its biggest gain in four months against the dollar after the Bank of Japan's Tankan survey showed business confidence at the highest in a year.
Japan's currency has rebounded about 2 percent from a 32- month low versus the dollar on Dec. 5 on speculation the economy is set to escape seven years of deflation, giving the central bank room to change monetary policy. Profits among large manufacturers will probably double in the year to March from the previous estimate, the survey said.
``Profit expectations and capital spending plans have been upgraded, so this is yen supportive,'' said Tomoko Fujii, a currency strategist at Bank of America N.A. in Tokyo.
Japan's yen rose to 118.68 per dollar at 2:34 p.m. in Tokyo from 119.95 yen late yesterday in New York, according to electronic foreign-exchange dealing system EBS. It earlier climbed to 118.49, the highest since Nov. 28. It rose to 142.58 per euro, from 143.23.
The yen will strengthen to 115 against the dollar and 141 versus the euro by the end of March, Fujii said.
The Tankan report showed an index of business confidence for non-manufacturers rose to 17 points in December. The index of large manufacturers rose to 21, the most in a year, from 19 in September. The prior survey came out in October.
``The Tankan survey continues to paint a healthy picture on the Japanese corporate sector,'' said Sabrina Jacobs, a currency strategist at Dresdner Kleinwort Wasserstein in Singapore. ``I told my trader here that it's a good number'' and should the yen break 119 today it will target 118.50.
Initially Fell
Bank of Japan Governor Toshihiko Fukui on Dec. 8 said the BOJ is close to shifting its policy as consumer prices will probably show ``solid'' gains in the first quarter of 2006.
Overseas investors this year bought a record amount of Japanese stocks, pushing the Nikkei 225 Average to a more than five-year high.
Overseas investors this year bought a net 9.44 trillion yen ($79 billion) of Japanese shares as of Nov. 18, surpassing the record 9.13 trillion yen they purchased in 1999, according to figures compiled by the Tokyo Stock Exchange.
The yen initially fell as low as 120.21 against the dollar as the manufacturers' index was less than the median forecast of 23 in a Bloomberg survey.
``Currency markets initially reacted negatively to the Tankan when they saw a worse-than-expected headline number,'' Bank of America's Fujii said. ``Still, this is a good Tankan.''
Profits among large manufacturers will probably rise 7.7 percent in the year ending March 31, higher than the 3.5 percent previous estimate, today's report showed.
Capital spending by large manufacturers will increase 17.3 percent this fiscal year, up from 16.2 percent in the previous survey, the report showed.
Euro Gain
The yen and the euro also gained against the dollar after the Federal Reserve dropped a reference to ``accommodation'' in a statement that followed the 13th straight increase in the target rate, suggesting borrowing costs no longer stimulate the economy.
Some traders strained to reduce their dollar holdings to lessen risk before the Christmas vacation, said Akihiro Tanaka, a senior currency dealer in Tokyo at Resona Bank Ltd.
``Yesterday's Fed meeting and today's Tankan report were this year's two remaining major events, and those events are now done,'' Tanaka said. ``A combination of a good Tankan and the weaker Fed statement is now leading investors to reduce their dollar holdings against the euro and the yen ahead of Christmas.''
The euro rose above $1.20 against the dollar for the first time since Nov. 3, reaching $1.2037 from $1.1945 yesterday.
`Down-Trend'
Hedge funds and other large speculators last week increased bets the dollar would gain against the euro and the yen, figures from the Washington-based Commodity Futures Trading Commission on Dec. 9 showed.
The difference in the number of wagers on a euro drop compared with those on a gain -- so-called net shorts -- rose to 22,572 on Dec. 6, the most since July, from 18,132 a week earlier, the Washington-based commission said.
The dollar's net longs against the yen, or bets on a rise, widened to a record 71,643 on Dec. 6, the most since the CFTC started publishing the figures in 1983, from 64,000 a week earlier, according to the commission.
``I expect the dollar's down-trend will continue toward the end of this year,'' Resona Bank's Tanaka said. ``It seems traders such as hedge funds are increasingly reducing their long dollar positions before an extended vacation starting next week.''
The dollar may fall to 118 yen and $1.2050 versus the euro this week, Tanaka said.
To contact the reporter on this story:
Chris Cooper in Tokyo at [email protected];
Kosuke Goto in Tokyo at at [email protected]
Last Updated: December 14, 2005 00:38 EST
Canadian Dollar Trades Near 1992 High After Fed Rate Decision
Dec. 13 (Bloomberg) -- Canada's dollar traded near the highest in almost 14 years after the Federal Reserve indicated it's getting closer to ending its cycle of increases.
Traders speculated that the U.S. rate advantage over Canada will shrink as the Fed stops raising its target overnight rate while the Bank of Canada is expected to continue boosting its comparable rate. Higher rates make a country's debt securities more attractive to foreign investors, who need the local currency to buy them.
Today's decision ``marks the beginning of the end of the the Fed's tightening cycle, which has supported the U.S. dollar,'' said Reid Farrill, executive director of foreign exchange at CIBC World Markets Inc. in Toronto. ``It is an opportunity to buy Canadian dollars.''
The Canadian currency was little changed at 86.86 U.S. cents at 4:07 p.m. in New York, from 86.89 U.S. cents yesterday, its highest value since January 1992. One U.S. dollar buys C$1.1514.
Farrill said a break past C$1.15 or about 87 U.S. cents may propel the Canadian dollar further to $1.1450 or 87.33 cents.
Canada's dollar has performed better this year versus its U.S. counterpart than all but the Brazilian real and the Mexican peso. It held near the 14-year high earlier today after an index of leading economic indicators increased, fueling expectations the central bank will continue raising rates to slow economic growth.
``The Bank of Canada will continue to raise interest rates even after the Fed pauses,'' said Michael Woolfolk, a senior currency strategist at Bank of New York. ``The narrowing of interest-rate differences has a positive effect'' on the Canadian dollar.
Today's reports on leading indicators and auto sales, as well as a trade surplus report tomorrow, are expected to show the economy is strengthening. The currency also has been helped by high prices for energy, gold and other commodities, which comprise 35 percent of Canada's exports and about 10 percent of its economy.
`Retains Support'
``The Canadian dollar retains support due to a combination of favorable trade and budget balances and links to commodity prices,'' said David Wolf, chief strategist at Merrill Lynch Canada Inc. in Toronto. ``The world wants more Canada.'' He spoke before the index was reported.
Canada's leading indicators index expanded 0.3 percent in November, less than the 0.4 percent median estimate of 15 economists surveyed by Bloomberg News. It rose 0.5 percent in September and October.
Leading indicators range from the performance of the benchmark Toronto Stock Exchange to the nation's money supply to give a picture of Canada's economy in the months ahead.
A separate report showed new motor vehicle sales increased 3.3 percent in October, more than economists expected, following two months of declines. Statistics Canada also projected November sales would rise 3 percent.
Consumer Spending
``That may mitigate concerns that a sharp increase in sales over the summer set us up for a payback in winter,'' Wolf said. ``It says the Canadian consumer is doing better than people think.''
A report tomorrow is expected to show Canada's trade surplus in October stayed near year highs, at C$6.9 billion, economists said.
Bank of Canada policy makers meet next to set their comparable rate on Jan. 24. They have raised their target rate three times since September.
When the central bank raised a quarter point to 3.25 percent last week, it said ``further reduction in monetary stimulus will be required,'' signaling more increases.
Futures Yields
Yields on interest-rate futures contracts indicate traders expect the Bank of Canada will continue to raise its rate in quarter percentage-point increments. The March bankers' acceptances futures yield remained near the highest level this year at 3.95 percent.
Traders use futures contracts as a gauge of expectations for the Bank of Canada's benchmark rate. Bankers' acceptances settle at a three-month lending rate that has averaged 16 basis points above the central bank's rate target since Bloomberg started tracking the gap in 1992.
Higher interest rates can attract investors to the nation's fixed-income assets.
Canada's benchmark 10-year bond, paying a 4.5 percent coupon and maturing in June 2015, rose C$3 cents to C$102.93. Its yield, which moves in the opposite direction, fell to 4.12 percent from 4.13 percent.
The 2.75 percent bond maturing in December 2007 fell 1 cent to C$97.96 and its yield was 3.84 percent, about the highest in two and a half years.
The yield narrowed to 57 basis points below U.S. Treasury two-year note yields, the smallest gap since May. The gap, known as the interest rate differential, between Canadian 10-year bonds and Treasuries was 40 basis points, the narrowest since Nov. 28.
Cue From Treasuries
Canadian bonds priced similarly to U.S. bonds today after a report showed U.S. retail sales excluding autos fell 0.3 percent last month, more than expected, compared with a 0.8 percent gain in October.
``The Fed is looking to slow the economy, so retail sales below expectations lead to thinking the Fed has a little less work to do in terms of raising rates, and the market catches a bid on that.'' said Michael Herring, debt strategist at BMO Nesbitt Burns Inc. in Toronto. He spoke before the Fed's policy announcement.
At the same time, Canadian policy makers seems convinced its own economy is growing faster than is desirable, so ``the expectation is that the Bank of Canada is continue to raise its bank rate.''
By the end of 2006, he anticipates interest rates will rise to 4.25 percent to 4.5 percent and 10-year notes will yield 4.75 percent.
Shorter-maturity bond yields are more sensitive to changes in expectations for interest rates, while longer maturities are more sensitive to changes in expectations for economic growth and inflation.
To contact the reporter on this story:
Deborah Finestone in New York at [email protected]
Last Updated: December 13, 2005 16:09 EST
