MW: Dollar gains on yen as Japan’s Abe hints at levels
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar traded mixed in thin, holiday-type dealings but gained ground on the yen Monday, after the country’s incoming prime minister said Japan must defend itself as other countries attempt to devalue their currencies.
The ICE dollar index DXY -0.09% , which measures the U.S. currency against a basket of six major rivals, stood at 79.450 in recent trade, off from 79.575 in North American action late Friday.
The dollar bought 84.46 Japanese yen USDJPY +0.1914% , up from ÂĄ84.13.
Prime Minister-elect Shinzo Abe on Sunday called on the Bank of Japan to resist what he said were attempts by the U.S. and Europe to cheapen their currencies, The Wall Street Journal reported. Moreover, Abe said that a yen level of around ÂĄ90 versus the dollar would benefit Japanese exporters.
Japanese markets were closed Monday.
Abe’s comments “provided the first clear guidance on where the incoming administration would like to see dollar/yen trade,” said Gareth Berry, strategist at UBS.
Berry noted there was little initial reaction to Abe’s remarks. Abe also continued to pressure the central bank to step up its monetary easing efforts, saying he would seek to revise the law governing the Bank of Japan if policy makers didn’t act at their January meeting.
Volume is expected to remain light. Most European and U.S. markets close early for Christmas Eve and will be shut on Tuesday for Christmas. Trade in Europe won’t resume until Thursday.
Developments regarding the so-called U.S. fiscal cliff will continue to be the main driver for markets, analysts said. The White House and congressional lawmakers are scrambling to craft a compromise that will avert about $600 billion in spending cuts and tax hikes otherwise set to take effect automatically Jan. 1.
Economists fear the sharp fiscal hit could send the U.S. into recession and take a substantial bite out of growth in the largest global economy.
Ratings firms have also warned that the U.S. could face a downgrade of its sovereign-debt rating.
“But perverse as it is, there’s still a decent chance that the dollar will gain into year-end on this scenario, but the yen will still be the main beneficiary overall,” said Simon Smith, chief economist at FxPro in London. The dollar and the yen both tend to gain ground when nervous investors flee assets perceived as carrying greater risk and flock into perceived havens.
Meanwhile, the euro EURUSD +0.3065% fetched $1.3228, up from $1.3178 late Friday.
Also Sunday, Italian Prime Minister Mario Monti said that he wouldn’t actively participate in the campaign leading up to early elections in February but that he would consider a second term if asked by a coalition willing to continue his economic agenda.
Polls, however, indicate voters have “little appetite for a second helping of Monti,” said Chris Scicluna, economist at Daiwa Capital Markets in London, with only 15% of voters backing a possible centrist coalition that might back him.
Instead, “hopes for some degree of policy continuity might have to lie more with the center-left Democratic Party of Pier Luigi Bersani, who has indicated a willingness to consider the range of policy proposals that Monti has committed to publish shortly,” Scicluna said.
The British pound GBPUSD +0.0846% changed hands at $1.6197 versus $1.6166.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Follow him on Twitter @wlwatts.
