The Yen rallied against 16 major currencies….
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Australian and New Zealand Dollars Fall on Growth Concerns
“The Australian and New Zealand dollars slid against most major peers as Asian stocks extended a global retreat, sapping demand for higher-yielding assets.
Both currencies are headed for their first monthly drop this year amid concern Chinese manufacturing will slow, curbing demand for resource exports. Australia’s dollar touched the weakest level in five months against New Zealand’s currency before a report forecast to show annual growth in bank lending in the larger nation was the slowest since August.
“A drop in Asian stocks is a negative catalyst for the South Pacific nations’ currencies,” said Takuya Kawabata, a researcher at Gaitame.com Research Institute Ltd. in Tokyo, a unit ofJapan’s largest currency-margin company. “We’d like to be cautious about a Chinese slowdown because it weighs on Australia’s dollar.”
Comments »The Dollar Halts its Downtrend Against the Euro
“The dollar snapped a two-day decline versus the euro before a U.S. report that economists said will show the drop in house prices slowed, undermining the case for more stimulus from theFederal Reserve.
The U.S. currency strengthened from the lowest level this month against its European counterpart before another report forecast to show U.S. consumer confidence stayed near the highest level in a year. The Dollar Index dropped 0.9 percent over the past two days amid speculation the Federal Reserve will start a third round of quantitative easing, or QE3. The pound pared an advance after a report showed U.K. retailers expect conditions to worsen next month.
“The dollar-negative mood will fade,” said Geoffrey Kendrick, head of European currency strategy at Nomura International Plc in London. “If today’s data is better than expected people might start to think there’s no need for QE3, which could be dollar positive. I think euro-dollar is a good sell here.”
The dollar was unchanged at $1.3359 per euro at 6:47 a.m. New York time, after depreciating to $1.3386, the weakest level since Feb. 29. The yen was little changed at 82.83 per dollar. The euro traded at 110.66 yen, after gaining 1.6 percent over the past two days….”
Comments »Chinese Media Asserts a Japanese Bond bubble is About to Burst; Yen to Take a 40% Hit
“It is a fact that when it comes to the oddly resilient Japanese hyperlevered economic model, the bodies of those screaming for the end of the JGB bubble litter the sides of central planning’s tungsten brick road. Yet in the aftermath of last month’s stunning surge in the country’s trade deficit, this, and much more may soon be finally ending. Because as Caixin’s Andy Xie writes “The day of reckoning for the yen is not distant. Japanese companies are struggling with profitability. It only gets worse from here. When a major company goes bankrupt, this may change the prevailing psychology. A weak yen consensus will emerge then.” As for the bubble pop, it will be a sudden pop, not the 30 year deflationary whimper Mrs. Watanabe has gotten so used to: “Yen devaluation is likely to unfold quickly. A financial bubble doesn’t burst slowly. When it occurs, it just pops. The odds are that yen devaluation will occur over days. Only a large and sudden devaluation can keep the JGB yield low.Otherwise, the devaluation expectation will trigger a sharp rise in the JGB yield. The resulting worries over the government’s solvency could lead to a collapse of the JGB market.” It gets worse: “Of course, the government will collapse with the JGB market.” And once Japan falls, the rest of the world follows, says Xie, which is why he is now actively encouraging China, and all other Japanese trade partners of the world’s rapidly declining 3rd largest economy to take precautions for when this day comes… soon. Oh, and this: ” If the bond yield rises to 2 percent, the interest expense would surpass the total expected tax revenue of 42.3 trillion yen.”
Why has Japan been able to sustain its deflationary collapse for over 3 decades? Simply – an ever rising currency.
A strong yen, deflation and rising government debt form a short-term equilibrium that lasts as long as the market believes it is sustainable. The yen has seen a relentless upward trend since it depegged from the dollar in 1971, up to 83.4 from 360 again to the dollar. When wages and asset prices rise, a strong currency can be justified. When wages and asset prices fall, a strong currency is suicide. Japan’s nominal GDP peaked in 1997 and its nominal wages did too. Its property prices have declined every year since. The Nikkei rose in only four out of the last fifteen years and is still close to a three-decade low.
Japanese policymakers, businesses, academics, currency traders and the average Mrs. Watanabe all believe in a strong yen. This belief is wrong but self-fulfilling. It has lasted so long because the Japanese government adopts policies to offset the destabilizing effects of deflation due to a strong yen. Hence, Japan’s national debt has marched upwards along with the value of yen. It is expected to top yen 1,000 trillion in 2012, 215 percent of GDP, 7.8 million yen (or roughly US$ 94,000) per person, and about half of net household wealth per capita.
The sustainability of Japan’s deflationary path depends on the market’s confidence in Japan’s debt market. As Japanese institutions and households hold almost all of the government’s debts, their faith in the government’s creditworthiness is the mojo for Japan’s seemingly harmless deflationary spiral.
There’s that. And also that it is nothing but a ponzi. In Xie’s words.
The justification for the low JGB yield is deflation. The real interest rate (the nominal rate plus deflation) is comparable to that in other countries. This rationale requires deflation to persist. But, deflation shrinks the nominal GDP or tax base. How could the government pay back its escalating debt by taxing a shrinking economy? It can only sustain its debt by borrowing more. This fits the definition of a particular type of Ponzi scheme.
Deflation is ok, if in addition to collapsing GDP, it is paralleled by declining wages.
The JGB bubble explains the seeming lack of pain in Japanese society. A strong yen and deflation haven’t led to an employment crisis because the government deficit is pumping up aggregate demand. As long as wages decline in line with prices, one doesn’t feel the pain. Japan’s household debt is only half of GDP, about half of the level in the United States. Deflation doesn’t cause much balance sheet trouble.
Unfortunately this is unsustainable by definition, as the divergence is a finite series at which point it become self-destructive. And yet the strong Yen is the glue that ties the rickety house of cards together… for now.
Despite the fact Japan has had a bad economy for so long, the yen has remained strong. It reinforces the Japanese psyche on the issue. The strong yen has become a cult.
The international financial market believes in a weak yen from time to time. In 1998, the short-selling by foreigners briefly caused the yen to touch 140 against the U.S. dollar. But, as the Japanese hold all of the yen, if they believe in the yen, foreign short-sellers get punished eventually. Over time, yen bears are all weeded out of the market. The remaining yen traders are all believers in a strong yen.
So far so good: any cult can exist in its own bubble if left to its own devices. However, as much as it is trying to avoid it, Japan’s secular role in international society is changing, and very soon the habitual self-delusion of its citizens, politicians, and FX traders will do nothing to offset the advent of reality….”
Comments »The Australian Dollar, Greenback, and Euro Show Strength Against the Yen
The dollar strengthened against the yen for the first time in four days on bets U.S. growth is gathering pace.
The Australian dollar climbed versus Japan’s currency as prospects for a recovery in the world’s largest economy supported demand for higher-yielding assets. The euro weakened against the dollar after Italian Prime Minister Mario Monti said Spain could reignite the region’s debt crisis. Economists said a U.S. report this week will show orders for durable goodsincreased in February.
“The U.S. economy is still relatively outperforming, which is supporting the U.S. dollar for now,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Investor concerns appear to be rising over Spain.”
The dollar rose 0.5 percent to 82.78 yen at 6:51 a.m. New York time. It appreciated 0.2 percent to $1.3241 against the euro. The 17-nation currency was 0.3 percent stronger at 109.62 yen, after rising as much as 0.5 percent to 109.86. The Australian dollar advanced 0.6 percent to 86.70 yen.
“The market feels almost compelled to sell yen as it has been the main trend in early 2012, although that trend is now flashing reversal signals,” Hardman said.
The dollar gained before a March 28 report that’s projected to show bookings for long-lasting U.S. factory goods rose 3 percent last month, according to the median estimate of economists surveyed by Bloomberg.
Treasuries fell, with the 10-year yield rising five basis points to 2.28 percent….”
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A Strong Dollar and Poor Global Economic Data Takes Gold Down to its Lowest Price Since January
“Gold dropped to the lowest price since January in London after reports showed manufacturing may contract from China to Germany and a stronger dollar curbed demand.
China’s manufacturing may contract for a fifth straight month in March, a report showed, hurting the outlook for commodities and sending the Standard & Poor’s GSCI Index of 24 raw materials to a one-week low. The U.S. dollar rose to the highest level in almost a week against a six-currency basket including the euro and the yen. About half of jewelry stores in India remain closed as owners protest against higher taxes.
“At the moment gold is looking weak, investors are coming out of it,” David Govett, head of precious metals at Marex Spectron Group, said today by phone from London. “Data out of Chinais weaker, so you are going to look for gold imports there to drop. And with the Indian tax increase, the two major buyers of gold got reasons not to buy it. With the stronger dollar and everything else that’s going on in the world, why buy gold at this moment in time?”
Gold for immediate delivery fell 0.8 percent to $1,636.88 an ounce by 10:05 a.m. in London. It fell as much as 1.1 percent to $1,632.45, the lowest price since Jan. 16. The April-delivery contract dropped 0.8 percent to $1,636.50 an ounce on the Comex in New York….”
Comments »The Euro Finds Strength After a Greek Parliamentary Vote on Bailout Approval
The Dollar Rises Against the Euro and Yen on China Slowdown Outlook
“The dollar rose for the first time in four days against the euro after BHP Billiton Ltd. (BHP) saidChina’s steel production is slowing, boosting demand for the relative safety of the U.S. currency.
The greenback strengthened against all of its 16 major counterparts, with the biggest gains versus Asia-Pacific region currencies such as the New Zealand and Australian dollars. The U.S. currency also advanced as stocks declined around the world, spurring investor appetite for safer securities. The euro also weakened against the dollar as a report showed German producer prices rose at a slower pace last month.
Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: Andrew Harrer/Bloomberg
March 16 (Bloomberg) — Steven Saywell, head of foreign-exchange strategy for Europe at BNP Paribas SA, talks about the dollar, yen and rising Treasury yields. He speaks with Maryam Nemazee on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)
March 15 (Bloomberg) — Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd., talks about currency strategy for the yen, dollar and Swiss franc. He speaks with Maryam Nemazee on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)
The dollar was at $1.3242 per euro as of 9:16 a.m. in Singapore from $1.3238 in New York yesterday. Photographer: Ali Mohammadi/Bloomberg
“Worries about a slowdown in the Chinese economy, that’s affecting risk” and boosting the dollar, said Geoffrey Yu, a currency analyst at UBS AG in London. “Yes the U.S. may be recovering but with the rest of the world in a slowdown, how beneficial is that going to be?”
Comments »Dollar Bulls Reach a Streak Not Seen Since 1999
“Not since 1999 have currency traders been bullish on the dollar for so long, a sign that the market sees the U.S. resuming its role as the engine of global economic growth.
Futures anticipating a stronger dollar against its developed-market peers have outnumbered those predicting a drop for 26 consecutive weeks through the five days ended March 13, according to Commodity Futures Trading Commission data. That’s the longest streak since the start of a three-year rally in the world’s reserve currency 13 years ago.
While much of the 2.4 percent gain in the Dollar Index since 2009 has come from investors seeking safety from European debt turmoil and the global financial crisis, analysts now say expansion is trumping fear as a reason for buying U.S. assets. Growth in retail sales and jobs in the world’s biggest economy has damped expectations for more Federal Reserve stimulus that might debase the currency….”
Comments »The Yen Hits a Fresh 11 Month Low Against the Dollar
“The yen weakened to an 11-month low against the dollar as U.S. 10-year Treasury yields rose for a seventh day before reports that analysts said will indicate the American economy is gathering momentum.
The yen declined against 13 of 16 major counterparts after Asian stocks advanced for a third day, curbing demand for the lower-yielding Japanese currency. U.S. data today will show initial jobless claims decreased and a regional index of manufacturing improved, according to economist estimates in Bloomberg surveys. Bank of Japan (8301) Governor Masaaki Shirakawa this week indicated the central bank will keep using monetary policy as a tool to tackle deflation….”
Comments »U.S. Dollar Hits an 11 Month High
Aussie and Kiwi Dollars Halt Their Downside As The Risk On Trade is Executed
“The Australian and New Zealand dollars rose for the first time in three days as Asian shares rallied, boosting demand for riskier assets.
The New Zealand dollar strengthened against all of its 16 major counterparts after reports showed the nation’s house and food prices increased in February. The appeal of Australia’s currency was limited after home loans in the country fell more than economists estimated and business confidence slumped to a five-month low…”
Comments »The Dollar Strengthens on Views That Fed Easing is Fading as Growth Comes Back
The Euro Waxes and Wanes Despite the Greece Debt Swap Deal
The Euro Weakens as European Markets Pare Gains
China Ahead of Schedule to Make the Renminbi Fully Convertible
The Euro Rises Against the Dollar
“The euro strengthened from an almost three-week low against the dollar on bets private investors will accept terms of a Greek bond exchange needed for the nation to receive a second rescue package.
The 17-nation currency rallied amid speculation options traders bought it to prevent automatic trades from triggering after recent declines. Australia’s dollar fell to a six-week low versus the greenback, before rebounding, as a government report showed the economy expanded by less than analysts had forecast. The pound rose versus the dollar as U.K. stocks advanced…”
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