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Yen soars against dollar after china announcement { March 7 2002 } Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=aRhXmGqXGhjk&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=aRhXmGqXGhjk&refer=home
Yen Soars After China Ends Its Decade-Long Peg to the Dollar
July 21 (Bloomberg) -- The yen rose the most in more than three years against the dollar after China ended its decade-old peg to the U.S. currency, spurring expectations Japan's exports will become more competitive.
The yen also gained versus 15 of the 16 most actively traded currencies, including the Swiss franc and Canadian dollar, after China's central bank raised the value of the yuan per dollar and said it will link it to a basket of currencies. Exports accounted for a third of Japanese growth last year.
``This should make Japanese exports more competitive and help them sell more to China,'' said Scott Schultz, a currency trader in New York at Brown Brothers Harriman & Co. ``This will help the yen strengthen.''
Against the dollar, the yen climbed to 110.27 at 12:36 p.m. in New York, from 112.91 late yesterday, according to electronic currency-dealing system EBS. The yen's advance was the biggest since March 7, 2002. The U.S. currency was at $1.2157 per euro, from $1.2138, after falling as low as $1.2255.
Schultz said he expects yen to rally to 105 per dollar in the next couple of months.
China's yuan until now had been pegged at about 8.3 per dollar, earning criticism from U.S. Treasury Secretary John Snow, Federal Reserve Chairman Alan Greenspan, German Finance Minister Hans Eichel and his Japanese counterpart, Sadakazu Tanigaki. They said that the peg gave China an unfair trade advantage.
Market Wasn't Ready
The yen may strengthen ``a lot because the market is not positioned for this right now,'' said Daniel Tenengauzer, senior currency strategist at Lehman Brothers Holdings Inc. in New York. The market didn't have ``long-yen positions,'' and wasn't expecting this, he said. A long position is a bet on a gain in price.
All of the most widely traded Asian currencies rose against the dollar. Singapore's dollar climbed 1.9 percent, to 1.6535 per dollar. South Korea's won gained 2.5 percent to 1019.00, and India's rupee advanced 0.8 percent to 43.18 per dollar.
``This will free up other Asian countries to let their currencies strengthen,'' said T.J. Marta, senior currency strategist at RBC Capital Markets in New York. ``To the extent that China revalues, that will lessen the competitive reins on other Asian countries.''
Within an hour of the announcement on the People's Bank of China Web site, Malaysia said it would change its own currency peg and allow the ringgit to fluctuate more freely.
Indonesia's central bank said the rupiah may rise. Aslim Tadjuddin, a deputy governor at the bank, said ``the yuan's revaluation will allow other Asian currencies to strengthen.''
Economic Growth
By contrast, the Bank of Korea said it would take ``necessary'' steps to curb speculative trading. Rhee Gwang Ju, director general at the bank's international department, said in an interview that the bank would ``stabilize'' the rate. Hong Kong kept its currency peg to the dollar.
China's $1.65 trillion economy is the second largest in Asia, after Japan's $4.67 trillion in gross domestic product. Chinese growth has outpaced that of Japan every year since 1990 and last year's expansion rate was more than triple that of its neighbor. The $11.7 trillion U.S. economy expanded 4.4 percent last year, less than half China's 9.5 percent pace.
The 2.1 percent appreciation of the yuan against the dollar is ``the tiniest and smallest move China could make,'' said Stephen Jen, head of global currency research in London at Morgan Stanley, the world's largest securities firm. U.S. politicians will probably press for a further appreciation, he said.
China didn't specify the basket against which the yuan will trade. The People's Bank of China said it will continue to maintain a trading band of 0.3 percent.
`Not Enough'
``Asian currencies will be moving basically because the 2 percent is not enough for the yuan,'' said Frank Gong, chief China economist at JPMorgan Chase & Co. in Hong Kong. ``The market will have to price in more appreciation down the road.''
Japan's currency began its advance in Asian trading after a government report showed the country's exports rose more than economists had forecast, suggesting overseas demand will help sustain an economic recovery.
Exports rose 3.6 percent in June from a year earlier, the Ministry of Finance said in Tokyo today. Economists had forecast a 2 percent gain. Overseas shipments, a fifth of which go to the U.S., accounted for a third of Japan's growth last year.
``Japan's exports are going to keep rising as the global economy does well and that is going to benefit the yen,'' said Mansoor Mohi-uddin, head of currency strategy in London at UBS AG. ``The yen should definitely be higher against the dollar on the back of stronger global growth.''
Japanese export growth accelerated from a 1.4 percent gain in May, which was the smallest in 18 months. The trade surplus narrowed 24 percent to 873.1 billion yen ($7.74 billion) as oil imports rose.
Last Updated: July 21, 2005 12:47 EDT
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