TOKYO (Thomson Financial) - The yen was trading slightly firmer against the
U.S. dollar in early afternoon trade in Tokyo on Friday as investors shifted
their funds from sluggish stocks to higher-yielding currencies.
"The yen tends to be picked up when stocks decline as investors' risk
tolerance decreases. So there is the continuing carry-trade move, although it is
not as intensive as it used to be," said Mitsuru Sahara, senior manager at Bank
of Tokyo-Mitsubishi UFJ.
Carry trades refer to the practice by which investors borrow funds in
countries such as Japan where the cost of funds is cheap, and reinvest them in
high-yielding currencies such as the Australian dollar.
At 1:15 p.m. (0415 GMT) the dollar was trading at 103.52 yen compared to
103.74 yen in Sydney and 103.75 in late trade in New York.
The euro was at $ 1.5408 compared to $1.5401 in Sydney and $1.5394 in New
York.
The weakness in the greenback follows a choppy session overnight when the
U.S. dollar came under pressure on renewed concerns about the outlook for the
U.S. economy, while the euro was supported after the European Central Bank
signaled that it had no intention to cut interest rates in the near term.
"Although the worst period of the credit crisis is considered to be over,
worries (about the U.S. economy) remain, such as the weak housing market in the
U.S.," Bank of Tokyo-Mitsubishi's Sahara said.
The ECB overnight left interest rates unchanged at 4.0 percent, with ECB
President Jean-Claude Trichet saying inflation rates are expected to "remain
higher over a rather protracted period of time before gradually declining
again."
"The ECB is unlikely to lower rates as it says inflation is its top
priority. And it is obvious the bank wants to increase rates. So in the
short-term, the euro tends to be bought while the dollar is seen to stay weak as
the Fed is unlikely to increase rates," Sahara said.
"But in the mid- to the long-term view, once the economy recovers to some
extent, the U.S. will also need to increase rates as there are inflation risks.
Since the U.S. has been aggressively lowering rates thus far, once signs for a
rate hike emerge, the dollar may sharply rebound," he said.
Tokyo 1:15 p.m. (0415 GMT)
U.S. dollar
yen 103.52
Swiss franc 1.0488
Euro
U.S. dollar 1.5408
yen 159.52
Swiss franc 1.6155
pound 0.7877
Pound
U.S. dollar 1.9556
yen 202.45
Swiss franc 2.0505
Australian dollar
U.S. dollar 0.9405
pound 0.4810
yen 97.38
kaori.kaneko@thomsonreuters.com
kk/zr
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