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Cuckoo For Currency

By:  Peter Schiff Friday, February 1, 2013

“In Switzerland, it’s not just the clocks that are cuckoo. Over the past four years Swiss politicians and central bankers have gone on an unprecedented buying spree of foreign exchange reserves. In 2012, their cache swelled to as much as $420 billion worth of various currencies, primarily the euro. This figure is a seven-fold increase since 2008 and equates to 70% of the country’s annual GDP. The sum translates to $200,000 per family of four, enough to keep the Swiss in clocks, chocolates, and fondue for many years to come. The Swiss leadership will claim the money has been “invested” with an eye to the future, but what they’ve done is impoverished themselves in the present.  Although such a decision seems perverse, it makes perfect sense when seen through the lens of today’s presiding economic thinking.

For the past few generations Switzerland has enjoyed some of the strongest economic fundamentals in the world. The country boasts a high savings rate, low taxes, strong exports, low debt-to-GDP, balanced government budgets, and prior to a few years ago one of the most responsible monetary policies in the world. These attributes made the Swiss franc one of the world’s “safe haven” currencies. But in today’s global economy, no good deed goes unpunished.

Central bankers around the world, particularly in Washington, Frankfurt and Tokyo, have been engaged in a massive and coordinated campaign of currency debasement to combat the recession. But for years the Swiss refused to join in the printing parade. As a result, investors around the world wisely decided to park their savings in the reliable Swiss franc. From December of 2008 to August 2011 the franc appreciated an astounding 59% against the U.S. dollar and approximately 30% against the Japanese yen. More importantly, the franc gained 42% against the euro. As the Eurozone completely surrounds Switzerland, its trade with those countries represents the vast majority of its international transactions…”

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The Aussie Dollar Finds Risk Off After China Posts Poor PMI Data

“The Australian dollar fell, erasing earlier gains, after growth in Chinese manufacturing trailed economists’ estimates, damping trade prospects.

The so-called kiwi touched the highest since August 2011 against its Australian counterpart afterReserve Bank of New Zealand Governor Graeme Wheeler said the smaller nation needs to reduce the budget deficit or face higher interest rates. The bank kept its benchmark borrowing cost at 2.5 percent yesterday.

“Chinese manufacturing data was not a disastrous result but definitely weaker than what the market was looking for,” saidJonathan Cavenagh, a currency strategist at Westpac Banking Corp. (WBC) in Singapore. “It would certainly take the shine off of Aussie dollar.”

Australia’s dollar declined 0.3 percent to $1.0392 at 4:27 p.m. in Sydney, after rising as much as 0.2 percent. The so- called Aussie bought 95.78 yen and touched 95.84, the highest since August 2008. Australia’s currency dropped to NZ$1.2350, the lowest since August 2011, before trading at NZ$1.2352, 0.6 percent below yesterday’s close.

The yield on Australia’s benchmark 10-year bonds rose seven basis points, or 0.07 percentage point, to 3.52 percent. The rate has climbed 20 basis points this week.

The kiwi advanced 0.3 percent to 84.14 U.S. cents from yesterday, when it gained 0.4 percent. The currency reached 77.58 yen, the highest since August 2008, before trading at 77.55, up 0.8 percent from yesterday’s close. Two-year interest- rate swaps in New Zealand rose 2 1/2 basis points to 2.92 percent.

China Manufacturing…”

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The Yen Falls Against the Dollar on Stimulus Prospects

“The yen depreciated to its weakest in 2 1/2 years against the dollar and euro amid speculation Prime Minister Shinzo Abe will select a new Bank of Japan (8301) governor who will boost monetary stimulus.

Japan’s currency extended its 12th weekly drop against the dollar as a report showed the jobless rate rose and household spending fell. The euro climbed against the greenback as a report showed manufacturing in the 17-nation region contracted less than estimated in January. The krona reached its strongest level in five months as Sweden’s manufacturing improved in December. The Dollar Index fell as stocks advanced before a report economists said will show U.S. employers added more workers.

Speculation about a new Bank of Japan governor “is the number-one source of the move we have seen in the yen,” said Peter Frank, global head of foreign-exchange strategy inLondon at Banco Bilbao Vizcaya Argentaria SA. (BBVA)“Because you are having that at the same time as strong equities, strong risk-on news flow generally, the yen is doubly weak.”

The yen sank 0.5 percent to 92.13 per dollar at 10:42 a.m. London time, after earlier touching 92.30, the weakest since June 2010. It slid 1.1 percent to 125.94 per euro, after being as low as 126.16, the least since April 2010.

The euro gained 0.7 percent to $1.3668, after being as strong as $1.3675, the most since Nov. 14, 2011. Yesterday it completed the longest stretch of monthly advances against the dollar since May 2003.

Inflation Target…”

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The Aussie Dollar Falls on the Risk Off Trade, While The Kiwi Pops on Recovery Talk

Australia’s dollar slid against most of its 16 major counterparts as Asian stocks declined, sapping demand for higher-yielding assets.

New Zealand’s dollar climbed toward a three-month high versus the so-called Aussie after the smaller nation’s central bank said it expects the economy to recover. Losses were limited in the New Zealand and Australian currencies ahead of a Chinese report tomorrow that economists predict will show manufacturing expanded this month in the world’s second-largest economy.

“Risk sentiment is deteriorating on the back of stock declines, weighing on the Australian and New Zealand dollars,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value.

Australia’s dollar dropped 0.3 percent to $1.0390 as of 3:58 p.m. in Sydney and is little changed this month. New Zealand’s currency, known as the kiwi, fell 0.1 percent to 83.50 U.S. cents, paring a monthly gain to 0.8 percent.

The MSCI Asia Pacific Index (MXAP) of shares lost 0.3 percent, snapping a two-day gain.

The kiwi strengthened 0.1 percent to NZ$1.2442 per Australian dollar. It reached NZ$1.2429 on Jan. 25, the strongest since Oct. 9. Two-year interest-rate swaps in New Zealand fell one basis point to 2.89 percent….”

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Tight Wads Help the Euro to Surge


“We mentioned earlier that the Euro has been on a jaw-dropping tear.

That continues today. Yesterday the euro was around 1.34. Today it’s at 1.355.

Why is it going nuts?

We chatted with analyst Lorcan Roche Kelly of Trend Macrolytics to get his take.

Well the big picture is that the ECB is the only central bank that’s acting relatively “tight” right now. The Fed will be on hold for awhile. Japan is doing new easing. The Bank of England is likely to do more under Mark Carney. You get the picture.

The specific story today that’s got people excited has to do with the ECB’s LTRO operations.

Remember at the beginning of 2012, the ECB held a bank-saving operation, where they gave banks cheap loans for up to 3 years in order to smooth the crisis.

Well things have really calmed down, and now banks are repaying their LTRO loans, in part to show that they’re strong and can stand on their own two feet.

About $137 billion of the LTRO loans is being paid back.

But today there was a 3-month LTRO operation, and the thinking was that maybe these banks who were paying back their 3 year loans early would roll into 3-month loans.

But that wasn’t the case.

As you can see here, just about $3.7 billion is being allotted in this operation….”

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The Euro Hits $1.35 For the First Time Since 2011, Precious Metals Move Higher

The euro strengthened above $1.35 for the first time since 2011, metals gained and Treasuries fell as the Federal Reserve meets and European economic confidence rose more than estimated this month. European stocks declined from a 23-month high.

The euro appreciated 0.4 percent to $1.3543 at 7:25 a.m. in New York, while the yen declined against all but one of its 16 major peers. Nickel advanced 2.1 percent and zinc climbed 2.3 percent, leading commodities to a three-month high. The Treasury 10-year yield increased two basis points to 2.02 percent. The Stoxx Europe 600 Index slipped 0.3 percent, while Standard & Poor’s 500 Index futures swung between gains and losses. Amazon.com Inc. jumped 9.2 percent after reporting gains in sales and North American operating margins.

The Fed’s latest round of bond buying will reach $1.14 trillion before it ends the program in the first quarter of 2014, economists forecast in a Bloomberg survey. The U.S. will report fourth-quarter economic growth today before monthly payroll data on Feb. 1. An index of executive and consumer sentiment rose to 89.2, surpassing the 88.2 reading forecast in a Bloomberg survey, the European Commission said today.

“The world is shifting from fear to hunt for opportunity,” said Neil Jones, head of European head of hedge- fund sales at Mizuho Corporate Bank Ltd. in London. “Slowly but surely, economic data in the euro zone is going in the right direction and the numbers today were encouraging. The euro is leading the way today.”

Euro Gains

The euro advanced for a second day against the dollar, reaching $1.3563, the highest level since November 2011. It appreciated to as high as 86.07 British pence, the strongest since Dec. 7, 2011, before trading at 85.85. Against the yen, Europe’s shared currency rose 1 percent….”

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The Dollar Falls Against the Yen for a Second Day

“U.S. stock-index futures fell and the dollar weakened against the yen for a second day before a report on consumer confidence and a Federal Reserve two-day meeting. European stocks were little changed and India’s rupee rebounded from a one-week low.

Standard & Poor’s 500 Index futures lost 0.4 percent at 7:15 a.m. in New York. The Stoxx Europe 600 Index slipped less than 0.1 percent. The dollar declined 0.4 percent versus the yen. The yield on 10-year Treasuries fell one basis point after yesterday rising above 2 percent for the first time since April. India’s rupee strengthened for the first time in three days against the U.S. currency as the central bank took steps to shore up the economy….”

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The Aussie and Kiwi Dollars Rise as Speculators Take Markets Higher

“Australian and New Zealand bonds tumbled, boosting their benchmark 10-year yields to the highest in at least four months, as gains in Asian stocks sapped demand for the relative safety of government securities.

The so-called Aussie dollar rose against 14 of its 16 major counterparts after data showed the nation’s business confidence for December rebounded by the most in more than a decade. New Zealand’s currency, nicknamed the kiwi, gained, snapping a three-day drop against the greenback after the nation’s annual trade deficit unexpectedly narrowed.

“The bond yields in Australia and New Zealand jumped quite a bit,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia (CBA), the nation’s largest lender. “The global environment of higher bond yields, as well as a rise in equity markets, is providing some support to the Aussie and kiwi.”

Yields on Australia’s 10-year government bonds increased nine basis points to 3.5 percent at 4:53 p.m. in Sydney, after touching 3.51 percent, the most since Aug. 16. The comparable rate in New Zealand jumped 10 basis points, or 0.1 percentage point, to 3.66 percent, the highest since Sept. 19.

Australia’s dollar rose 0.4 percent to $1.0454 from the close yesterday when it touched $1.0385, the least since Jan. 2. It advanced 0.2 percent to 94.83 yen after earlier falling as much as 0.5 percent. New Zealand’s dollar climbed 0.3 percent to 83.68 U.S. cents and rallied 0.2 percent to 75.91 yen.

The MSCI Asia Pacific Index of shares climbed 0.8 percent.

Confidence Jumps…”

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China’s FX Regulator Signals the Yuan is Positioned Correctly, That China Must Guard Against Currency Wars

China’s foreign-exchange regulator urged Group of 20 nations to improve collaboration to avoid any so-called currency wars while signaling he’s comfortable with the value of the yuan.

On a global level, there needs to be “better communication and coordination” on foreign exchange among the G-20, Yi Gang, who is also a deputy governor of China’s central bank, said in an interview at the World Economic Forum’s annual meeting in Davos, Switzerland, on Jan. 26. “Right now, it is pretty much close to the equilibrium level,” he said, referring to the Chinese currency’s exchange rate.

Japanese Economy Minister Akira Amari said in Davos that his nation is trying to defeat deflation rather than weaken the yen, after Prime Minister Shinzo Abe’s push for laxer monetary policy sparked a slide in the currency. His comments on Jan. 26 followed a week in which German and Canadian policy makers joined a worldwide chorus highlighting a recent plunge in the yen as a worry.

“A currency war, a series of tit-for-tat competitive devaluations, would trigger trade protection measures that would damage global trade and therefore growth globally,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank. “That would not be good for any country with a stake in the global economy.”

Criticism Abated….”

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The Aussie Dollar Rallies on Prospects of BoJ Stimulus


The Australian dollar rose versus the yen for a second day on speculation pressure will increase on the Bank of Japan (8301) to expand stimulus after core consumer prices in the nation declined last month.

The so-called kiwi dollar traded 0.3 percent from its highest level versus the yen since September 2008 after minutes of a BOJ policy meeting in December showed the central bank intends to continue powerful easing. The Australian currency reached a three-week low versus the U.S. dollar as traders remained almost split on whether the Reserve Bank of Australia will cut its benchmark interest rate on Feb. 5.

“We should see more yen weakness, and Aussie-yen as a consequence is beginning to perform quite well,” said Jim Vrondas, the chief currency and payments strategist, Asia- Pacific, at OzForex Ltd. in Sydney. “The market is quite confident that the new regime in Japan, for the time being at least, is going to deliver on what they’re saying in a somewhat aggressive way,” he said referring to Liberal Democratic Party’s return to power after elections last month.

Australia’s dollar rose 0.2 percent to 94.56 yen as of 4:42 p.m. in Sydney. It fell as low as $1.0439, the weakest since Jan. 4, before trading unchanged at $1.0451.

New Zealand’s dollar was little changed at 75.67 yen, after reaching 75.89 yesterday, its strongest since September 2008. It declined 0.2 percent to 83.63 U.S. cents.

The so-called Aussie may climb toward 100 yen and New Zealand’s dollar may advance to 80 yen over the first quarter, Vrondas said.

Japan Inflation…”


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The Euro Hits an 11 Month High

“The euro strengthened to an 11-month high against the dollar as the European Central Banksaid lenders will repay more of its loans than economists forecast. U.S. stock-index futures rose, while the yen weakened for a second day.

The euro climbed 0.4 percent to $1.3436 at 7:10 a.m. in New York and the yen slid 0.8 percent versus the dollar. The pound dropped less than 0.1 percent to $1.5784, erasing earlier gains, after the U.K. economy contracted more than analysts anticipated. The Stoxx Europe 600 Index advanced 0.3 percent, extending a 23-month high. Standard & Poor’s 500 Index futures increased 0.3 percent as Starbucks Corp. climbed 2.6 percent. Lead and zinc jumped to three-week highs and European Union carbon permits headed for a record weekly decline….”

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The Yen Continues to Tumble for an 11th Straight Week


“The yen headed for a record stretch of weekly losses against the dollar as data showing a decline in Japanese consumer prices added to the case for further monetary stimulus from the central bank.

The Bank of Japan (8301) announced open-ended easing and a 2 percent inflation target this week. The Japanese currency remained weaker after touching a 2 1/2-year low as Governor Masaaki Shirakawa said he will make “considerable efforts” to reach the price target. The Dollar Index rose before U.S. data forecast to show home sales increased.

“The market’s looking for any excuse to sell the yen at the moment,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk management company. “The weakness in the yen has got quite a long way to go. It’s very hard to find economic fundamentals that justify buying the currency.”

The Japanese currency slid 0.2 percent to 90.55 per dollar at 6:39 a.m. in London from yesterday, after earlier touching 90.69, the weakest since June 21, 2010. It was set for an 11th weekly loss, the longest losing streak in data compiled by Bloomberg going back to 1971.

The yen dropped to 121.31 per euro, the weakest since April 2011, before trading at 121.03, 0.2 percent lower than yesterday’s close in New York. The 17-nation euro fell 0.1 percent to $1.3367. The shared currency was still poised for a 0.4 percent weekly gain against the dollar and 0.9 percent advance versus the yen.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, added 0.1 percent to 80.038.

Consumer Prices…”

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The Aussie and New Zealand Dollars Rise on China PMI Data

“The Australian and New Zealand currencies rose versus the yen after a survey of companies showed Chinese manufacturing expanded at the fastest pace in two years, brightening the outlook for commodity exports.

The South Pacific dollars advanced against their Japanese counterpart after the announcement by HSBC Holdings Plc and Markit Economics for the preliminary reading of a Purchasing Managers’ Index for China beat analysts’ forecasts. The so- called Aussie weakened versus New Zealand’s dollar as signs of limited inflation in the larger economy caused traders to add to bets on the size of interest-rate cuts this year.

“We have seen a bounce back in the Australian and New Zealand dollars due to the Chinese PMI data,” said Tim Waterer, a senior foreign-exchange dealer at CMC Markets in Sydney. “The fact that we’ve seen another improvement in Chinese activity lends itself to support a currency like the Aussie, which is hypersensitive to all things Chinese.”

Australia’s dollar rose 0.4 percent to 93.94 yen as of 4:52 p.m. in Sydney. It fell 0.4 percent to $1.0517 and slid 0.4 percent to NZ$1.2473. New Zealand’s currency gained 0.9 percent to 75.32 yen and added 0.1 percent to 84.31 U.S. cents.

The preliminary reading of the PMI Index was 51.9 in January, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 51.5 final reading for December and the 51.7 median estimate of analysts surveyed by Bloomberg News.

China is Australia’s largest trading partner and New Zealand’s second-largest export destination.

Inflation Contained…”

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Japan Reiterates a Currency Weakening Policy, Yen Falls After Three Days of Upside

“Japan’s deputy economy minister said that a yen at 100 to the dollar wouldn’t be a problem, indicating global criticism may fail to convince Prime Minister Shinzo Abe to temper his push to weaken the currency.
“The current level around 90 can be said to be a correction of the strong yen, but it isn’t over yet,” Yasutoshi Nishimura said in an interview today in Tokyo. He said a level of 110 to 120 would raise import costs, echoing the view of Abe’s adviser Koichi Hamada and suggesting that the government won’t back a currency free-fall.

Nishimura joins Japanese officials pushing back at international criticism as the yen’s 8 percent decline in two months causes friction ahead of February’s Group of 20 meeting. He said theBank of Japan (8301) will need to pursue bolder monetary easing to achieve its new 2 percent inflation target, speaking after data today showed exports fell for a seventh month and a record annual trade deficit….”

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How to Bank Coin From the Coming Forex Wars


“LONDON (MarketWatch) — Central banks around the world have tried just about everything to drag their economies out of recession. They have slashed interest rates to three-century lows, printed money in vast quantities, and recapitalized banks with soft loans.

So far, however, they haven’t had much success. Now they have one last weapon left in the armory — a currency depreciation.

All-out currency wars are now looming.

A series of central banks, both large and small, have begun to target a lower exchange rate as a way of boosting their economies. Read: The warning from the Bundesbank’s Weidmann about currency wars.

Whether it works remains to be seen. For investors, however, that may be less important than figuring out which countries will be successful in getting their currencies down — and which other assets will go up in value if an all-out currency war does break out.

In the immediate wake of the financial crisis of 2008 and 2009, policy makers agreed not to engage in competitive devaluations.

Beggar-my-neighbor trade polices are part of the textbook explanation for the Great Depression of the 1930s and no one wanted to repeat the mistakes of that decade.

The British managed to slip through a 25% drop in the value of sterling GBPUSD +0.23% without anyone noticing very much (a sign perhaps of the pound’s diminished importance in the world). But otherwise, currencies stayed much were they were before the crisis struck. Indeed, the main feature of the foreign-exchange markets in their last five years has been their extraordinary stability; while every other asset price went haywire, most currencies stayed where they were….”

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BoE Says a Strong Sterling Will Be an Obstacle to Stimulus

“Bank of England policy makers said the pound’s level may prove an obstacle to rebalancing the economy and David Miles cited the currency as he repeated his call for an expansion of stimulus.

The Monetary Policy Committee voted 8-1 to keep their bond- purchase plan unchanged at 375 billion pounds ($595 billion), according to minutes of the Jan. 10 decision published in London today. Members diverged on the risks to the economy, with some saying there was scope for wages to pick up while others noting that the economy could grow faster without generating inflation.

“Substantial headwinds to recovery remained, including the drag to activity from fiscal consolidation, a further squeeze in household real incomes, and the deterioration in U.K. competitiveness over the past couple of years,” the minutes said. “The sterling real exchange rate might be above the level compatible with the necessary rebalancing of the economy.”

The Bank of England halted bond purchases in November and is relying on its so-called Funding for Lending Scheme to aid the recovery. Bank of England Governor Mervyn King said yesterday that credit conditions have improved, and “should improve further as the impact of the FLS kicks in.”

The pound rose after today’s minutes report and data showing falling unemployment. The currency was up 0.2 percent today at $1.5871 as of 9:35 a.m. in London.

King’s View…”

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Slower Than Expected Inflation Knocks the Aussie Dollar Down


Australia’s dollar dropped, halting a two-day gain, after data showed consumer prices increased last quarter by less than economists forecast, giving the Reserve Bank scope to cut borrowing costs further.

The so-called Aussie fell against all but one of its 16 major counterparts after the Bureau of Statistics said the consumer price index advanced 0.2 percent from the previous three months, compared with the median forecast of economists in a Bloomberg News survey of a 0.4 percent increase. The trimmed mean gauge of core inflation rose 0.6 percent from the previous quarter, compared with a forecast gain of 0.7 percent.

The inflation data “does allow the RBA to ease further if it seems necessary,” said Annette Beacher, head of Asia-Pacific research for TD Securities Inc. in Singapore. “The Australian dollar has fallen on the headline just because the outcome was marginally lower than consensus.”

Australia’s dollar dropped 0.3 percent to $1.0538 as of 4:09 p.m. in Sydney from the close yesterday. It fell 0.6 percent to 93.21 yen. New Zealand’s dollar traded little changed at 84.05 U.S. cents and slid 0.3 percent to 74.34 yen.

Yields on Australia’s 10-year government bonds declined six basis points, or 0.06 percentage point, to 3.3 percent.

Traders see about a 47 percent chance the Reserve Bank of Australia will lower its key rate by a quarter percentage point to a record low 2.75 percent at a Feb. 5 meeting, little changed from yesterday, interest-rate swaps data compiled by Bloomberg show….”

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The Yen Rises as Stimulus is Deferred

“The yen strengthened for a third day after the Bank of Japan deferred new monetary stimulus. Standard & Poor’s 500 Index futures were little changed before lawmakers vote on the debt limit, while Portuguese bonds gained as the country prepared to return to the bond market.

Japan’s currency rose 0.5 percent to 88.31 per dollar at 6:35 a.m. in New York, poised for its first three-day increase since November. S&P 500 futures lost 0.1 percent and the StoxxEurope 600 Index swung between gains and losses. Portugal’s 10- year yield fell six basis point to 5.83 percent and credit- default swaps on the country dropped to the lowest in 27 months. Raw sugar slumped to a 29-month low and zinc jumped 1.1 percent.

The yen will weaken against the U.S. currency by the end of the year, as the BOJ’s decision to hold off on fresh stimulus puts pressure on the government to revive growth through fiscal measures, according to a Bloomberg survey of strategists. U.S. House Republicans vote today on lifting the nation’s debt ceiling through mid-May. Portugal is preparing to sell five-year notes in its first bond offering since requesting a bailout in April 2011, following Ireland’s return as borrowing costs fall.

“The yen currently is in an upward correction phase after it weakened rapidly in the past two months,” said Noriaki Murao, managing director of the marketing group at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The market was somewhat disappointed in that no deadline has been set for the inflation target and that the open-ended asset purchases don’t start until 2014.”

The yen strengthened against all but one of its 16 major counterparts, gaining 0.3 percent per euro. Europe’s shared currency added 0.1 percent to $1.3337….”

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The Yen Jumps Over 1% on BoJ Decision

“The yen strengthened the most in eight months against the dollar after the Bank of Japan said it will wait a year to begin open-ended asset purchases aimed at boosting the economy. The euro gained and stocks pared losses after German investor confidence climbed to a 2 1/2-year high.

Japan’s currency climbed 1.2 percent to 88.58 per dollar at 7:25 a.m. in New York. The euro appreciated 0.2 percent to $1.3343 after falling as much as 0.4 percent…”

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