A Yen Rally?

by: Steven Towns

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

FOREIGN EXCHANGE: Dollar Rises on Europe Rivals, But Yen Gains as Rally Goes On

  • Summary: The yen continued to rally most of yesterday on earlier news of stronger-than-expected CAPEX data in Japan for the quarter ending in June. The director of research at Forex.com commented, "The major theme that we've had [yesterday] is the liquidation of the carry trade. We're looking at a lower dollar overall and the yen taking a turn into the limelight." The yen is trading at its highest levels in two weeks against both the euro and dollar. Currency traders are now waiting on data releases today for Q2 U.S. productivity and unit labor costs, which will help determine the direction of trading for the dollar.
  • Comment on related stocks/ETFs: Both the dollar and euro are gaining on the yen so far today, with exchange rates currently at $1/Y116.4 and €1/Y149.28. Despite the CAPEX data induced newfound strength of the yen the BoJ is still unlikely to raise rates at this week's decision meeting, if anything due to the change in leadership later this month as PM Koizumi finishes out his term. Of particular interest however, is news Japan's monetary base dropped 20% in August to 87.56 trillion yen ($752b), falling for the sixth consecutive month and its largest monthly decline ever. Over the past year the dollar and euro have gained about 6% and 9% respectively against the yen. Against other Asian currencies the yen is down around 13% against the South Korean won, off by about 8% against the Chinese yuan, and down about 12% against the Singapore dollar. South Korean exports have particularly suffered this year whereas Japanese exports have gained heavily from forex profits. For more on currencies visit Seeking Alpha's Dollar/Currencies section in Market Overview.