MW: Yen's strength unlikely to persist in weak Japanese economy
The Japanese yen climbed significantly against major global currencies Thursday, hitting a two-month high against the U.S. dollar and hurting shares of the country's exporters in Tokyo.
But some analysts said the currency's strength in the near term was unlikely to persist amid the weakness in the world's second-largest economy.
"Fundamentals will ultimately outweigh the near-term dollar weakness" against the yen, said Patrick Bennett, Asia forex and rates strategist at Société Générale in Hong Kong.
He said that the U.S. economy is likely to outperform that of Japan this year, although both will likely post an overall contraction.
In Asian currency trading Thursday morning, the U.S. dollar fell as low as 94.27 yen -- a level the greenback hasn't seen since March. By midday, it was trading at 94.45 yen, compared with its previous close at 94.82 yen.
The euro was changing hands for 130.36 yen, compared with 130.99 yen the previous day, while the Australian dollar slipped to 73.36 yen from 73.47 yen.
The yen's gains came after an overnight drop on Wall Street and the release of U.S. Federal Reserve meeting minutes showing some members favored more purchases of long-term Treasurys and mortgage-related debt.
Still, some analysts said the dollar's weakness against the yen and euro may persist near-term.
Credit Suisse analysts wrote in a note that there was a prospect the U.S. dollar-Japanese yen exchange rate would trade "even lower in a weak U.S. dollar environment. USD/JPY remains heavy, with the next support at 93.50 [yen]."
The yen's strength also came after economic data from Tokyo showed Wednesday that the country's economy shrank by an annualized rate of 15.2% in the first-quarter from the previous three months. The data, which were better than some economists had feared, raised hopes that the situation may improve in coming quarters.
But SocGen's Bennett didn't share the optimism on the Japanese economy, and expects the U.S. dollar to climb back over 100 yen by the end of 2009.
"I think there was nothing in yesterday's data which would give you any confidence going forward. The only reason people are calling a bottom is that [they think] it couldn't get any worse. But I don't believe that's a particularly good way to be doing some forecasting," he said.
Still, the yen's strength contributed to the weakness in Japanese shares on Thursday, as exporters' stock values are often very sensitive to currency movements.
The Nikkei 225 Average was 1.2% lower at 9,235.15 at the start of afternoon-session trading, tracking an overnight decline on Wall Street.
Elsewhere in the region, Hong Kong's Hang Seng Index fell 1.3%, China's Shanghai Composite gave up 1.5%, South Korea's Kospi lost 1.1%, and Australia's S&P/ASX 200 shed 0.7%.
