WSJ: Dollar Rises Against Yen After Smooth JGB Auction
By KOSAKU NARIOKA
The U.S. dollar rose against the yen in Asia Thursday after a smooth Japanese government bond auction bolstered expectations that JGB yields would decline and increase the attractiveness of higher-yielding foreign assets.
The auction result appears to be one of the first signs that the Bank of Japan's new quantitative easing measures introduced earlier this month are producing the intended results—lower interest rates. The Ministry of Finance sold 1.1 trillion yen ($11.21 billion) of 20-year bonds Thursday, attracting solid bids.
"Yields overseas will look more attractive now," said Yuji Kameoka, chief foreign exchange strategist at Daiwa Securities 8601.TO +2.57% .
For months, market participants have expected declining JGB yields would push Japanese investors toward foreign-currency denominated assets. But at first, the introduction of the BOJ's easing seemed to confuse many bond market participants and created unusual volatilities in the long dormant market.
The dollar was at ¥98.19 from ¥98.11 late Wednesday in New York. The euro was at ¥128.15 from ¥127.88.
Volatilities implied by one-month at-the-money dollar/yen options fell to 13.00%/13.45% from 13.33%/13.68% late Wednesday in New York. Selling interest outpaced buying as the JGB market regained stability, said a senior trader at a Japanese trust bank.
Still, market participants said there is caution over selling yen too aggressively ahead of the meeting of Group of 20 industrial and developing nations' finance ministers and central bank governors in Washington starting later in the global day. Japan has invited criticism in recent weeks from its trade partners that its aggressive easing steps are devaluing the currency.
"Emerging economies may raise concerns over currency wars after the Bank of Japan's easing move," said Kenichiro Ikezawa, fund manager at the foreign fixed-income group at Daiwa SB Investments.
Market participants are closely watching how the G-20 will characterize Japan's massive easing announced earlier this month.
"Japan isn't likely to be singled out and attacked," said Motonari Ogawa, senior dealer at Barclays Bank in Tokyo. "There will be little market impact if the language is similar to that in the past. If anything, the dollar might be bought against the yen because positions have been trimmed lately."
The euro was at $1.3054 from $1.3033 late Wednesday in New York, according to EBS. The dollar was at CHF0.9314 from CHF0.9330.
The Wall Street Journal Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 73.729 from 73.788.
