Wednesday February 21, 2007 - 22:34:22 GMT
Share This Story
Reuters - www.reuters.com
FOREX-Yen falls vs dollar as BOJ hints at slow rate rises
By Amanda Cooper
NEW YORK, Feb 21 (Reuters) - The yen fell against the dollar and euro for a fourth straight day on Wednesday after the Bank of Japan raised benchmark interest rates for the first time since July but said further increases would be gradual.
That left investors still willing to fund carry trades using yen, borrowing in Japan, where rates are low, and then selling the yen to buy higher-yielding currencies.
That strategy will remain appealing as long as Japanese monetary policy remains predictable and financial market volatility stays low, strategists say.
A key measure of U.S. inflation that showed prices rose at a faster pace than expected in January also supported the dollar as it fed the notion that U.S. interest rates will not fall any time soon. For details please see [ID:nN21311008]
This view was reinforced by the minutes of the Jan. 30-31 meeting of the Federal Open Market Committee, which suggested U.S. policy-makers were uncertain inflation was firmly on a downward path. [ID:nTRT000204]
"We got a bit of a boost from the higher CPI numbers this morning," said Ronald Simpson, managing director of global currency analysis for Action Economics in Tampa, Florida.
"We've got the BOJ behind us and they raised rates, but again, going from 0.25 percent to 0.50 percent isn't going to scare away too many of those accounts interested in the carry trade," he said.
The dollar rose nearly 0.8 percent against the yen to trade at 120.88 yen as the Japanese currency retraced almost all its gains of the past week.
The euro traded at 158.84 yen , according to electronic trading platform EBS, after climbing to a record of 159.05 yen in the New York session.
Against the dollar, the euro was down marginally at $1.3137.
Even with Wednesday's rate hike to 0.5 percent, the highest in a decade, Japanese interest rates are the lowest in the industrialized world. Investors doubt the BOJ could raise again soon, especially with core Japanese inflation barely rising.
BOJ Governor Toshihiko Fukui, in a news conference, said the Japanese central bank does not have specific schedules in mind for future hikes.
The dollar rose briefly after the U.S. Labor Department said the Consumer Price Index for January rose more than expected despite a dip in energy prices, as medical costs jumped. [ID:nN20196451].
"(Federal Reserve Chairman Ben) Bernanke has a dovish tone, so I'm not sure that the market is confident we would see a (rate) hike before a hold or even a cut," said Peter Rosenstreich, financial market strategist at HedgeStreet in New York.
Many investors think the United States is heading for a "Goldilocks" scenario in which inflation pressures moderate while economic growth slows gently. That would likely allow the Fed to keep rates steady at 5.25 percent.
Fed Vice Chairman Donald Kohn said U.S. financial markets appear to be priced for a "very stable outlook." Kohn said he expected global imbalances to work themselves out. [ID:nWBT006591].
In other trading, the yen fell to a one-month low against the New Zealand dollar , the highest yielder among major currencies, as the carry trade returned into focus. The kiwi also hit seven-week highs versus the greenback . (Additional reporting by Kevin Plumberg and Nick Olivari)
Â© Reuters 2007
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."