Yen Climbs on Report China May Loosen Exchange Rate at Any Time
Yen Climbs on Report China May Loosen Exchange Rate at Any Time
April 29 (Bloomberg) -- The yen climbed to a one-month high against the dollar and rose versus the euro after a state- sponsored newspaper in China said the government may let its currency trade more freely at any time.
China has now established the conditions to shift from its fixed exchange rate, the China Securities Journal, which is affiliated with the official Xinhua news agency, reported today, citing unidentified experts. A stronger yuan may reduce the competitiveness of China's exports compared with Japan.
``This type of news signals we're moving close to a shift,'' said Steve Saywell, head of currency strategy at Citigroup Inc. in London. ``We're going to see the dollar under pressure and the yen is likely to benefit from this.''
The yen gained to 105.15 per dollar at 11:16 a.m. in London, from 106.13 late yesterday in New York, according to electronic currency-dealing system EBS. It rose as high as 105.01, the strongest since March 22. Japan's currency also advanced to 136.32 per euro, from 136.84, and rose against the pound and the currencies of Singapore, Australia, and Taiwan.
``What's most significant is the fact that it's in effect officially sanctioned in a state-sponsored newspaper,'' said Adam Cole, a currency strategist in London at RBC Capital Markets. ``We may see a test of 105 on dollar-yen.''
JPMorgan Chase & Co. chief China economist Frank Gong predicted today that China may loosen the yuan's peg next week. China has kept the yuan at about 8.3 per dollar since 1995. He made the comments in an interview from Hong Kong.
A Chinese central bank spokesman said in a telephone interview today China hasn't changed its currency policy.
Foreign Pressure
Federal Reserve Chairman Alan Greenspan, Treasury Secretary John Snow and President George W. Bush have urged China to make the yuan more flexible. Senators including New York Democrat Charles Schumer claim china is keeping the yuan artificially low to gain trade advantages.
Chinese central bank Governor Zhou Xiaochuan said on April 23 that China, under pressure from governments abroad, may quicken preparations to make the yuan more flexible. The report helped send the yen to a one-month high on April 25.
Trading was less than usual in Asia because of the closure of Tokyo's markets, which are also shut from May 3 through May 5, said Steven Chang, vice president of global markets in Hong Kong at State Street Bank & Trust Co., a unit of the world's largest provider of investment services to institutions.
``Trading was very slow in the morning because Tokyo was not in today, but when the China news came out, the market just shot up,'' said Chang.
Dollar Drops
The dollar also dropped against the euro on concern an industry report today will add to evidence the U.S. economy is slowing. The dollar was at $1.2966 per euro, from $1.2893, ending a four-day rally, the longest winning streak in a month.
The National Association of Purchasing Management-Chicago's business activity index probably fell to 62.5, from 69.2 in March, the median of 60 forecasts in a Bloomberg survey shows. The release is scheduled for 10 a.m. New York time.
```We've seen a series of weak data out of the U.S.,'' said Xinyi Lu, chief strategist in Tokyo at UFJ Bank Ltd., a unit of Japan's fourth-biggest lender. ``That's weighing on the dollar,'' which may fall to $1.3070 per euro and 104.80 yen next week, Lu said.
A government report yesterday showed the U.S. economy slowed more than expected in the first quarter, to a 3.1 percent annualized pace, from a 3.8 percent rate in the fourth quarter of 2004. The median forecast in a Bloomberg survey was for a 3.5 percent growth rate.
Yen, Yuan Correlation
The yen has tended to gain in the past year against the dollar when futures traders increased bets on China to let its currency rise, according to data compiled by Bloomberg.
The correlation between the yen and Chinese 12-month forwards is 0.84, measuring the coincidence of closing gains and declines on a scale of -1, meaning prices move opposite each other, to 1, meaning they move in lockstep.
``It's a very significant thing to be talking positively about the widening of the band in an official newspaper,'' said David Mann, a currency strategist at Standard Chartered Plc in London. China may allow the yuan to appreciate by 3 percent from the current peg by the end of June, which may send the yen higher by the same amount, said Mann.
Winning Week
The dollar is still heading for its best week in five against the euro as pessimism that Europe's economy is faltering outweighed evidence of slowing growth in the U.S. The dollar is up 0.8 percent from the end of last week.
French unemployment rose in March, pushing the jobless rate to the highest in more than five years, a government report showed today. The number of unemployed rose by 7,000 to 2.77 million, pushing the jobless rate to 10.2 percent, the highest since December 1999.
``I am bearish on the euro,'' said Dariusz Kowalczyk, senior investment strategist in Hong Kong at CFC Securities Ltd. ``As far as growth is concerned, all the signs are bad for the euro region.'' The currency may fall to $1.28 next week, he said.
Germany's six leading institutes three days ago slashed their estimate for growth in Europe's largest economy to 0.7 percent this year. Surveys this week showed French manufacturers were more pessimistic in April than any time in the past 18 months, while German business confidence fell to a 19-month low.
To contact the reporter on this story: Steve Rothwell at srothwell@bloomberg.net
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