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Yen climbs on report china ready to loosen exchange rate Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=10000101&sid=anosKWzSs61o&refer=japanhttp://www.bloomberg.com/apps/news?pid=10000101&sid=anosKWzSs61o&refer=japan
Yen Climbs on Report China May Loosen Exchange Rate at Any Time
April 29 (Bloomberg) -- The yen posted its biggest gain in two months against the dollar and in more than a year versus the euro after a state-sponsored newspaper in China said the government may let its currency trade more freely at any time.
China has now established the conditions to shift from its fixed exchange rate, the China Securities Journal, which is affiliated with the official Xinhua news agency, reported today, citing unidentified experts. A stronger yuan may reduce the competitiveness of China's exports compared with Japan.
``This type of news signals we're moving close to a shift,'' said Steve Saywell, head of currency strategy in London at Citigroup Inc., the world's biggest bank. ``We're going to see the dollar under pressure, and the yen is likely to benefit.''
The yen rose 1.2 percent to 104.85 per dollar at 1:46 p.m. in New York, from 106.13 yesterday, according to currency-dealing system EBS. It earlier reached 104.61, the strongest since March 18. The dollar erased losses against the euro as reports showed U.S. personal spending rose in March and Chicago-area business in April was better than economists forecast.
Japan's currency strengthened 1.4 percent to 134.98 per euro, from 136.84. It's up 1.2 percent this week against the dollar and 2.6 percent versus the euro. Europe's single currency is heading for its biggest weekly loss in five against the dollar on concern the euro-region's economy is faltering.
JPMorgan Chase & Co. chief China economist Frank Gong predicted today that China may loosen the yuan's peg next week. China has kept the yuan at about 8.3 per dollar since 1995. Gong, who made the comments in an interview from Hong Kong, correctly forecast October's first Chinese interest-rate increase in a decade.
`Taking Dollar Lower'
``What's most significant is the fact that it's in effect officially sanctioned in a state-sponsored newspaper,'' said Adam Cole, a currency strategist in London at RBC Capital Markets. ``The market is taking the dollar lower against the yen today as a result.''
A Chinese central bank spokesman said in a telephone interview today China hasn't changed its currency policy. China plans to move ``gradually'' toward full convertibility of its currency, the country's State Administration of Foreign Exchange said in a statement today.
Federal Reserve Chairman Alan Greenspan, Treasury Secretary John Snow and President George W. Bush have urged China to make the yuan more flexible. Senators including New York Democrat Charles Schumer claim China is keeping the yuan artificially low to gain trade advantages.
Under Pressure
Chinese central bank Governor Zhou Xiaochuan said on April 23 that China, under pressure from governments abroad, may quicken preparations to make the yuan more flexible. The report helped send the yen to a one-month high on April 25.
China's central bank hasn't received any notice from the government to prepare for a change in the nation's exchange rate during next week's national holidays, AFX reported, citing an unidentified senior bank official.
The U.S. currency was at $1.2870 per euro, from $1.2893. The dollar is up 1.5 percent this week.
The dollar rebounded from earlier losses after the National Association of Purchasing Management-Chicago said its index of regional business fell to 65.6 in April, higher than the 62.5 reading expected in a Bloomberg survey. U.S. spending rose 0.6 percent in March, more than the median forecast for a 0.4 percent gain, the Commerce Department said separately.
'Bigger and Bigger'
``Chicago was strong and the Fed will obviously hike next week'' and likely again the following meeting, said Karl Halligan, chief currency trader in New York at CIC Bank. ``The rate differential with the euro zone is getting bigger and bigger. My preference is dollars over euros.'' The dollar will rally to $1.28 in the next few weeks, he said.
Fed policy makers will raise their target rate by a quarter- point, to 3 percent, for the eighth straight meeting on May 3, according to the median forecast. The European Central Bank's benchmark rate is 2 percent.
``I'm bearish on the euro,'' said Dariusz Kowalczyk, senior investment strategist in Hong Kong at CFC Securities Ltd. ``As far as growth is concerned, all the signs are bad for the euro region.'' The currency may fall to $1.28 next week, he said.
French unemployment rose in March, pushing the jobless rate to the highest in more than five years, a government report showed today. The number of unemployed rose by 7,000 to 2.77 million, pushing the jobless rate to 10.2 percent, the highest since December 1999.
Germany's six leading institutes three days ago slashed their estimate for growth in Europe's largest economy to 0.7 percent this year. Surveys this week showed French manufacturers were more pessimistic in April than any time in the past 18 months, while German business confidence fell to a 19-month low.
`Just Shot Up'
Trading was less than usual in Asia because Tokyo markets were shut for a national holiday, said Steven Chang, vice president of global markets in Hong Kong at State Street Bank & Trust Co., a unit of the world's largest provider of investment services to institutions. Tokyo markets also close from May 3 through May 5.
``Trading was very slow in the morning because Tokyo was not in today, but when the China news came out, the market just shot up,'' said Chang.
The yen has tended to gain in the past year against the dollar when futures traders increased bets on China to let its currency rise, according to data compiled by Bloomberg.
The correlation between the yen and Chinese 12-month forwards is 0.84, measuring the coincidence of closing gains and declines on a scale of -1, meaning prices move opposite each other, to 1, meaning they move in lockstep.
``It's a very significant thing to be talking positively about the widening of the band in an official newspaper,'' said David Mann, a currency strategist at Standard Chartered Plc in London. China may allow the yuan to appreciate by 3 percent from the current peg by the end of June, which may send the yen higher by the same amount, said Mann.
Last Updated: April 29, 2005 13:50 EDT
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