Euro little moved by progress on pact, peripheral bonds rally
By William L. Watts and V. Phani Kumar, MarketWatch
LONDON (MarketWatch) — The yen retreated versus major rivals in choppy trade on Monday, as the Bank of Japan provided a massive dose of liquidity and voted to further loosen its monetary policy in the wake of last week’s devastating earthquake and tsunami.
The central bank injected a total of 15 trillion yen ($183 billion) into the markets Monday in a bid to bolster financial stability. Read more about the Bank of Japan’s actions.
The U.S. dollar (USDYEN 81.8500, +0.0500, +0.0611%) rebounded sharply to ¥82.03 on Monday, after tumbling to a 2011 low of ¥80.60 earlier in the day, from ¥81.88 in New York late Friday.
The euro (EURYEN 114.1800, -0.0300, -0.0263%) , meanwhile, fetched ¥114.57, also coming off the day’s ¥113.23 low and Friday’s late level of ¥113.77.
Japanese stocks fell sharply on Monday.
The path for the yen remains uncertain as traders weigh the implications of the disaster, with some strategists looking for the currency to appreciate as insurance firms and others repatriate funds.
The yen rallied by around 20% in the wake of the January 1995 Kobe earthquake, eventually hitting an all-time high versus the U.S. dollar at ¥79.75. Read Forex Files column on obstacles to repeating yen's 1995 rally.
Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole, said the yen will probably see an “upward bias” in coming weeks as funds are repatriated back home and as Japanese margin traders, who are “very long dollar-yen positions,” likely liquidate some of those positions.
“The real test will be the 80-yen level [against the U.S. dollar] and will probably be defended by Japanese authorities with potential intervention,” he said.
Others contend the impact of repatriation flows may be overestimated in the face of further loosening by the Bank of Japan and increased borrowing by the Japanese government.
“The Japanese yen is starting the week facing the prospect of looser fiscal and monetary settings," said Simon Derrick, chief currency strategist at Bank of New York Mellon. “As such, it is difficult to make an argument in favor of currency strength,” particularly given that any sustained recovery is likely to be led by the export sector.
“It seems reasonable to suppose that the Japanese government would be grateful for this one small piece of relief” in the form of a weaker yen, he said, in a research note.
The Japanese government said Sunday it will move decisively to combat speculative moves when the markets open Monday, according to a Wall Street Journal report.
Meanwhile, the dollar index (DXY 76.56, -0.22, -0.28%) , which measures the U.S. currency against a basket of major currencies, fell 0.3% to 76.517.
The euro (EURUSD 1.3950, -0.0013, -0.0931%) got a modest lift versus the U.S. dollar after euro-zone leaders reached a weekend agreement to boost the lending capacity of the region’s bailout fund and to ease somewhat the terms of Greece’s rescue loans.
Leaders also approved a watered-down version of the competitiveness pact introduced by Germany and France earlier this year. Economists said the moves were encouraging, but that leaders still need to take steps to address solvency and bank-recapitalization issues.
The euro traded at $1.3971 versus the dollar, up from $1.3903 on Friday.
The British pound (GBPUSD 1.6103, +0.0022, +0.1368%) changed hands at $1.6114 versus the dollar, up 0.3%.
