Last updated: September 10, 2007 7:18 pm

Yen slips as growth figures disappoint

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The yen lost ground on Monday after Japanese growth data came in below expectations.

Figures showed Japanese gross domestic product slowed 0.3 per cent in the second quarter.

Analysts said the figures would put pressure on the Bank of Japan to postpone any rise in interest rates for as long as possible.

Camilla Sutton, currency strategist at Scotia Capital, said the yen had been the strongest-performing major currency in the past month.

She said a climb in currency volatility and market risk aversion had put carry trades, in which the low-yielding Japanese currency is sold to finance the purchase of riskier, higher-yielding assets elsewhere, under pressure.

“However, no currency can defy the gravity imposed by economic fundamentals forever,” she said. “A much larger than expected downward revision to Japan’s second-quarter GDP growth gave those with the foresight to be long in yen an excuse to take a little profit.”

By midday in New York, the yen had fallen 0.2 per cent to Y156.40 against the euro and lost 0.3 per cent to Y78.50 against the New Zealand dollar.

However, analysts were doubtful that yen weakness could last, given that economic contraction was likely to decrease the risk appetite of Japanese retail investors, who had been important sellers of the yen in the past.

“The yen has trended weaker since early 2005 which coincided with strong economic fundamentals so evidence of weak fundamentals now is unlikely to help weaken the yen,” said Derek Halpenny, at Bank of Tokyo-Mitsubishi UFJ.

Meanwhile, the yen was flat against the dollar at Y113.40.

The dollar came under pressure, slipping to a 15-year low against a basket of currencies, as expectations that the Federal Reserve would move to slash US interest rates following last week’s soft employment report continued to undermine the currency.

“The jobs data have now shifted the focus from whether the Fed will cut on September 18 to what magnitude the cut will be,” said Mitul Kotecha, head of global foreign exchange research at Calyon.

The dollar index, which tracks its value against a basket of six leading currencies, fell to a low of 79.826, its lowest level since 1992.

The dollar fell 0.2 per cent to $1.3795 against the euro, less than one cent away from the low of $1.3852 it hit in July. The dollar also eased 0.1 per cent to $2.0310 against the pound and lost 0.1 per cent to SFr1.1860 against the Swiss franc.

Elsewhere, the Norwegian krone rose 0.4 per cent to NKr5.7200 against the dollar after stronger inflation data. David Watt at RBC Capital Markets said the figures would reinforce the bias of the country’s central bank to raise interest rates.

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