Yen Slips Broadly After Tokyo Olympics Win

The yen fell against the dollar and euro on Monday, staying on the defensive as Japanese equities rallied after Tokyo won a bid to host the 2020 Summer Olympics.

The dollar last fetched 99.57 yen, up 0.4 percent from late U.S. trade on Friday, having risen to as high as 100.11 yen earlier on Monday. The euro rose 0.5 percent to about 131.21 yen.

Tokyo’s win could mean a noticeable bump for the economy as it gears up for the Games. The Tokyo bid committee reckons hosting the Olympics would boost the economy – from construction and higher prices – by 3 trillion yen ($30.14 billion) over the coming seven years.

The yen fell initially as traders positioned for a bullish start for the Nikkei and sold the yen, given that the yen and Tokyo shares have been inversely correlated in recent months. Japan’s Nikkei share average rose 1.9 percent .N225.

“Although the majority of Japanese seemed to have thought Tokyo’s victory was highly likely, such views seemed not to have been shared by foreign investors necessarily, partly due to the toxic water problem at the Fukushima nuclear plant. Therefore, the news could be seen as a positive surprise,” analysts at JPMorgan wrote in a client note.

Dollar-selling by Japanese exporters as well as some squaring of long dollar positions later supported the yen, and helped temper the greenback’s gains against the Japanese currency, market players said.

Traders said there was little direct impact on the yen from an upward revision to Japan’s second-quarter economic growth, which matched the market’s expectations.

Against the yen, the dollar recovered to levels seen before Friday’s disappointing U.S. jobs numbers, which raised questions about whether the Federal Reserve will actually begin to scale back its massive stimulus program next week.

But comments from two Federal Reserve officials suggested the tapering plan is still on track. Esther George, the Kansas City Fed’s consistently hawkish leader, said she favored trimming the bond-buying program. Chicago Fed President Charles Evans said he could be swayed towards a pullback.

That should give investors the confidence to buy the dollar on any dips, traders said. The euro eased 0.1 percent to about $1.3175, taking a breather after Friday’s 0.5 percent gain.

“If the decision comes out in favor of tapering, then it will be a pretty strong boost to the U.S. dollar,” said Gareth Berry, Singapore-based G10 FX strategist for UBS, referring to the Fed’s policy meeting on September 17-18.

While the majority view among economists seems to be that the Fed will decide next week to start tapering its monetary stimulus, the greenback could still gain a lift if that happens as there is some uncertainty, Berry said.

“The key thing, though, is that they would probably try some further rhetorical innovation when it comes to convincing the market that a rate hike will not follow quickly after tapering ends… That will take some of the wind out of the U.S. dollar’s advance once the tapering decision is made,” Berry added.

The Australian dollar touched a three-week high around $0.9222, further benefiting from Chinese trade data that added to evidence that the world’s second-biggest economy may have avoided a sharp slowdown. China is Australia’s single biggest export market.

The Australian dollar last stood at $0.9205, up 0.2 percent from late U.S. trade on Friday.

Data on Monday added to evidence of stabilization in China’s economy, with China’s consumer inflation holding steady in August while producer price deflation continued to ease.

Investors barely reacted to the outcome of Australia’s national election, which as expected, saw the conservative Liberal-National Party coalition swept into power as investors overwhelmingly voted out the Labor Party.

Still, some analysts expect business confidence could bounce now that the election is out of the way and with the coalition tending to be seen as more pro-business.

“The removal of election uncertainty and the decisiveness of the win by the Coalition are factors likely to boost confidence,” said Craig James, chief economist at CommSec.

Source : Reuters