Last updated: January 8, 2013 5:50 pm

Yen rise defies eurozone bond buy policy

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Haven currencies rose with the Japanese yen posting strong gains against other major currencies, even as Japan said it would buy eurozone bailout bonds in an attempt to help weaken the yen.

The euro and dollar fell against the Japanese currency after Taro Aso, Japan’s new finance minister, announced plans to buy bonds issued by the European Stability Mechanism (ESM), Europe’s new bailout fund.

The new Japanese government has made a weaker yen one of its key goals after coming to power in December. However, foreign currency analysts said that the effect of eurozone bond buying on the yen could be muted, as Japan planned to buy ESM bonds using its existing foreign exchange reserves, implying no currency transactions would take place.

The yen initially sold off on the announcement but later rose against other major currencies. “There is no actual reason for yen weakness if Tokyo uses its forex reserves to purchase ESM bonds,” said analysts at Commerzbank.

The euro hit a session high of Y115.21, but was later 1 per cent lower at Y114.09. The dollar fell 0.8 per cent to Y87.05.

The yen also gained on haven demand as analysts said that investors were closing positions in risk-related currencies due to concerns that the rally since the start of the year had gone too far. The dollar index, which measures the dollar against a basket of other major currencies, rose 0.2 per cent.

The euro fell 0.4 per cent against the dollar to $1.3055 following a raft of negative economic data on the eurozone. The unemployment rate in the eurozone hit a record high in November at 11.8 per cent, while figures showed German exports dropped faster than expected in the same month.

The Swedish krona was one of the weakest major currencies during the session after minutes of the Swedish central bank’s last meeting were published, showing that members had considered a larger interest rate cut in December. The US dollar rose 0.8 per cent to SKr6.5643 while the euro rose 0.4 per cent to SKr8.5635.

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