FOREX-Yen out in the cold as year-end optimism lifts stocks

Reuters - UK Focus

* Yen falls to fresh five-year lows vs USD & euro

* Record (LSE: REC.L - news) -closing high on Wall Street weighs on low-yieldingyen

* Higher U.S. Treasury yields also help underpin USD

By Ian Chua and Hideyuki Sano

SYDNEY/TOKYO, Dec 27 (Reuters) - The yen wallowed atfive-year troughs against the dollar and euro on Friday, havingfallen prey to a renewed appetite for risk which lifted WallStreet to record highs and weighed on the low yielding currency.

The Japanese currency is on course to post its ninthconsecutive week of falls against the dollar, the longest suchperiod since 1974, when the country was suffering from theaftermath of the oil crisis that started the previous year.

"The momentum is so strong. In a way the market seems a bitoverheated but it is likely to continue after a relief that theFed's tapering of stimulus did not cause a shock in globalfinancial markets," said Minori Uchida, chief FX strategist atBank of Tokyo Mitsubishi UFJ.

The dollar rose to as high as 105.05 yen beforeretreating to 104.86 yen, while the euro rose to 143.915 yen -- highs not seen since October 2008.

The yen's decline came in thin year-end trade and was acontinuation of a well entrenched trend after Japaneseauthorities this year launched a shock-and-awe stimulus strategyto snap the economy out of years of deflation.

"USD/JPY continues to move towards my long held year-endtarget of 105.00 and is clearly getting a helping hand by thefact that the U.S. 10-year treasury is at 2.99 percent andtesting the September high of 3 percent," said Chris Weston,chief market strategist at IG (LSE: IGG.L - news) in Melbourne.

"The ever increasing premium the U.S. 10-year treasurycommands against other developed market bonds is clearlyincreasing the USD's appeal."

Yields on Japanese government 10-year bonds are at just 71basis points.

Treasury yields could rise further in 2014 if the FederalReserve continues to scale back its bond-buying programme,having last week taken the first step towards winding down itsmassive stimulus plan.

On Friday, data showed Japan's November core inflation raterose 1.2 percent from a year earlier, the highest reading infive years, as the yen's steep fall boosted import prices.

Retail sales in November also rose 4.0 percent from a yearearlier, the largest gain since April 2012, led by strong autosales.

Many economists expect inflation to peak soon, however,forcing the Bank of Japan to take additional easing steps earlynext year, as the economy is likely to face headwind from asales tax hike in April.

Against the dollar, the euro gained 0.4 percent to $1.3740 , maintaining its moderate uptrend this week.

It has risen more than seven percent from a low hit in July,as the euro zone economy came out of a recession triggered byits debt crisis.

The European Central Bank has not been expanding its balancesheet actively unlike its U.S. and Japanese counterpart, givingan additional boost to the euro.

The greenback also advanced against dollar-bloc commoditycurrencies such as the Australian dollar, but fell on sterlingafter strong British mortgage data reinforced expectations theBank of England may raise interest rates sooner than expected.

Sterling popped up to a 1-1/2-week high of $1.6438 on Thursday and last stood at $1.6424.

The Australian dollar slipped 0.2 percent to $0.8880, near a three-year low of $0.8820.

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