News Column

Dollar stuck just below 102 yen line, upside capped amid Iraq fears

June 25, 2014

Mai Iida

The U.S. dollar was stuck in a narrow range just below the 102 yen line in Tokyo Wednesday as it remained top-heavy amid concerns over violence in Iraq and falling stock prices.

At 5 p.m., the dollar fetched 101.90-91 yen compared with 101.92-102.02 yen in New York and 101.96-98 yen in Tokyo at 5 p.m. Tuesday. It moved between 101.86 yen and 101.97 yen during the day, changing hands most frequently at 101.89 yen.

The euro was quoted at $1.3611-3613 and 138.70-74 yen against $1.3601-3611 and 138.70-80 yen in New York and $1.3605-3607 and 138.72-76 yen in Tokyo late Tuesday afternoon.

Although the dollar climbed into the 102 yen range overnight in New York on positive U.S. housing and consumer confidence data, the momentum quickly disappeared and trading lacked a clear sense of direction in Tokyo.

The dollar's short-lived advance overnight came after the U.S. Commerce Department said sales of new single-family homes jumped 18.6 percent to a seasonally adjusted annual rate of 504,000 in May. The Conference Board Consumer Confidence Index surged to 85.2 in June, the highest level since January 2008, compared with 82.2 in May.

Dealers said risk-taking sentiment was diminishing given geopolitical concerns in Iraq and Ukraine, and a lackluster performance for stock markets at home and abroad, supporting demand for the perceived safety of the yen. But such yen-buying was also not so strong.

The dollar-yen pair has been confined to a tight range on either side of the 102 yen line over the past week or so.

"Everyone in the market should be wondering why the pair does not move so much," said Daisuke Karakama, chief market economist at Mizuho Bank.

"As for the reason behind the dollar's top-heaviness, it can only be described as U.S. yields' failure to rise at best," he said.

A senior dealer at a major Japanese bank said although U.S. economic data turned out to be strong overnight, U.S. stocks and Treasury yields fell and Japanese stocks followed suit. Under such circumstances, the dollar was drifting to the lower side of the recent boxed range, he said.

"There's also a significant amount of offers (to sell the dollar) at the 102 yen zone from Japanese exporters," the senior dealer said in pointing to a factor capping the dollar's upside.

The currency market showed muted reaction to the Japanese government's new economic growth strategy, approved by the Cabinet the previous day, as most elements had already been reported, dealers said.

Under the strategy, the government has pledged to promote deregulation of farming, employment and medicine, and also promised to cut Japan's 35 percent corporate tax rate to below 30 percent within a few years from fiscal 2015.

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Source: Japan Economic Newswire

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