Yen Firmer After Japan PM Abe’s Remarks; Dollar Pauses From Rally

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The yen edged higher on Wednesday after Japanese Prime Minister Shinzo Abe reportedly voiced concern about the economic impact of the currency’s recent weakness.

The dollar slipped 0.3 percent on the day to 108.55 yen JPY= after Jiji news service quoted Abe as saying he would carefully watch the impact of the yen’s recent weakness on Japanese regional economies.

The prime minister’s comments came in the wake of the yen’s slide to a six-year low of 109.46 yen versus the dollar last Friday, a drop of roughly 7 percent from levels touched in early August.

It is only natural to see these types of comments given how fast the yen has dropped versus the dollar recently, said Jesper Bargmann, head of trading for Nordea Bank in Singapore.

“I think it’ll serve the purpose and maybe slow down the move a little bit,” Bargmann said.

“They’re certainly not, in my opinion, directed to talk the yen stronger, but more directed at the speed of the move,” he added.

The yen has weakened against a broadly stronger dollar as investors wagered that U.S. interest rates would rise long before those in Japan or Europe.

The yen has also been weighed down by speculation that a forthcoming strategy review by Japan’s $1.2 trillion Government Pension Investment Fund (GPIF), which is drawing up plans to increase the weighting of domestic stocks in its portfolio, may also result in an increase in its allocation toward overseas assets.

Abe’s comments are probably aimed at trying to avoid any criticism related to the yen’s weakness, said Mitul Kotecha, head of FX strategy, Asia-Pacific for Barclays in Singapore.

“But ultimately, I don’t think the trend or the tone will change. It appears to me that Japanese officials would still prefer to see yen weakening as long as it’s a gradual drop in the currency,” Kotecha added.

The dollar held steady versus a basket of major currencies and last traded at 84.621 .DXY, hovering near a four-year high of 84.861 set on Monday.

The dollar index has taken a breather after rising for 10 straight weeks on speculation that the U.S. Federal Reserve will hike interest rates sooner rather than later, diverging from monetary policy in Europe and Japan.

“A lot of hedge funds were taking profits after the dollar’s recent rise,” said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm.

“But other investors see an opportunity to buy the dollar on dips,” he said.

The euro edged up 0.1 percent to $1.2858 EUR=, holding above Monday’s 14-month low of $1.2816.

There was some attention on geopolitical risks, after the United States and its Arab allies bombed militant groups in Syria for the first time on Tuesday.

The impact on major currencies, however, seemed fairly mild so far, market participants said.

A trader for a Japanese bank in Singapore said risk aversion could increase if equities were to see sharp declines but added that the market impact seemed to be limited for now.

U.S. President Barack Obama on Tuesday said more air strikes would be carried out against extremists in Syria after separate bombing missions on Islamic State militants and on an al Qaeda affiliate that U.S. intelligence said was poised to attack America or Europe.

Source : reuters