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Yen's decline to 20-month low against dollar lifts Nikkei index
Source: Agencies |
December 27, 2012, Thursday
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THE Japanese yen fell to a 20-month low against the US dollar yesterday, buoying the Nikkei stock average to nine-month highs, as Japan swore in a new prime minister eager to pursue drastic stimulus steps to drive the country's economy out of deflation.
Asian shares and other assets were capped in thin holiday trade, with investors focusing on the fate of US negotiations to avert a budget crunch looming at the end of this year.
Markets in Singapore, Malaysia, Indonesia, the Philippines and South Korea reopened yesterday after closing on Tuesday for the Christmas holiday. Hong Kong and Australia remain closed yesterday.
MSCI's broadest index of Asia-Pacific shares outside Japan was little changed. South Korean shares ended nearly flat.
Shinzo Abe, whose party won a landslide victory in an election earlier this month, was elected Japan's prime minister yesterday. Abe is calling for a mix of aggressive monetary policy easing and big fiscal spending to beat deflation and rein in the strong yen.
He has kept up pressure on the Bank of Japan to be more drastic and adopt a 2 percent inflation target to beat deep-rooted deflation, pushing the yen to a 20-month low of 85.38 yen on trading platform EBS yesterday. Traders eyed the dollar's 2011 high of 85.53 yen as the next target.
The euro rose as high as 112.55 yen on EBS, just below its 16-month high of 112.59 yen on December 19.
The weaker yen has bolstered hopes for better earnings from Japanese companies and underpinned the Nikkei, which has gained some 18 percent since mid-November when the election was scheduled, fueling expectations for Abe's party to win. The yen has lost nearly 8 percent against the dollar in the same period.
The Nikkei closed at a nine-month high, with a 1.5 percent increase.
"Most foreign funds have added Japanese shares and there are fewer participants today, but there still is a reason for the Nikkei to rise," said Hideyuki Okoshi, general manager at Chibagin Securities. "Not only exporters but investors are buying other stocks which could benefit under the new government."
Japanese government bond prices fell, with the 10-year bond futures hitting a three-month low of 143.65 in active trade. Ten-year JGB yields rose 1.5 basis points to 0.78 percent, matching a six-week high on December 19.
"We continue to see equities going high, so the pressure is on the long end of the JGB curve. For the short end of the curve, we continue to see the BOJ ease aggressively, so there is no change in that," said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments.
Minutes of the BOJ's policy-setting meeting in November, released yesterday, showed that some board members said the BOJ must act decisively, without ruling out any policy options, if the outlook for the economy and prices worsens further.
The dollar may stay firm this week as the US fiscal impasse is likely to continue to sap investor appetite for risky assets and raise the dollar's safe-haven appeal.
Ten-year US Treasury notes held steady in price to yield 1.776 percent in Asia, little changed from late US trade on Monday. The US bond market was closed on Tuesday for Christmas.
"I think there is about a 50 percent chance of the cliff being avoided at the year-end through an agreement of some kind, even if it turns out to be just a short-term postponement," said Tomoaki Shishido, a rate analyst for Nomura Securities in Tokyo.
If the US falls off the fiscal cliff, economists warn the world's largest economy could slip into recession and drag global economies down as well.
Asian shares and other assets were capped in thin holiday trade, with investors focusing on the fate of US negotiations to avert a budget crunch looming at the end of this year.
Markets in Singapore, Malaysia, Indonesia, the Philippines and South Korea reopened yesterday after closing on Tuesday for the Christmas holiday. Hong Kong and Australia remain closed yesterday.
MSCI's broadest index of Asia-Pacific shares outside Japan was little changed. South Korean shares ended nearly flat.
Shinzo Abe, whose party won a landslide victory in an election earlier this month, was elected Japan's prime minister yesterday. Abe is calling for a mix of aggressive monetary policy easing and big fiscal spending to beat deflation and rein in the strong yen.
He has kept up pressure on the Bank of Japan to be more drastic and adopt a 2 percent inflation target to beat deep-rooted deflation, pushing the yen to a 20-month low of 85.38 yen on trading platform EBS yesterday. Traders eyed the dollar's 2011 high of 85.53 yen as the next target.
The euro rose as high as 112.55 yen on EBS, just below its 16-month high of 112.59 yen on December 19.
The weaker yen has bolstered hopes for better earnings from Japanese companies and underpinned the Nikkei, which has gained some 18 percent since mid-November when the election was scheduled, fueling expectations for Abe's party to win. The yen has lost nearly 8 percent against the dollar in the same period.
The Nikkei closed at a nine-month high, with a 1.5 percent increase.
"Most foreign funds have added Japanese shares and there are fewer participants today, but there still is a reason for the Nikkei to rise," said Hideyuki Okoshi, general manager at Chibagin Securities. "Not only exporters but investors are buying other stocks which could benefit under the new government."
Japanese government bond prices fell, with the 10-year bond futures hitting a three-month low of 143.65 in active trade. Ten-year JGB yields rose 1.5 basis points to 0.78 percent, matching a six-week high on December 19.
"We continue to see equities going high, so the pressure is on the long end of the JGB curve. For the short end of the curve, we continue to see the BOJ ease aggressively, so there is no change in that," said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments.
Minutes of the BOJ's policy-setting meeting in November, released yesterday, showed that some board members said the BOJ must act decisively, without ruling out any policy options, if the outlook for the economy and prices worsens further.
The dollar may stay firm this week as the US fiscal impasse is likely to continue to sap investor appetite for risky assets and raise the dollar's safe-haven appeal.
Ten-year US Treasury notes held steady in price to yield 1.776 percent in Asia, little changed from late US trade on Monday. The US bond market was closed on Tuesday for Christmas.
"I think there is about a 50 percent chance of the cliff being avoided at the year-end through an agreement of some kind, even if it turns out to be just a short-term postponement," said Tomoaki Shishido, a rate analyst for Nomura Securities in Tokyo.
If the US falls off the fiscal cliff, economists warn the world's largest economy could slip into recession and drag global economies down as well.
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