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Yen Gains; NHK Says Bank of Japan's Fukui Proposed Raising Rate
By Kosuke Goto
Feb. 21 (Bloomberg) -- The yen strengthened against the dollar after NHK Television reported that Bank of Japan Governor Toshihiko Fukui proposed raising the central bank's benchmark interest rate.
Japan's currency snapped a three-day loss on speculation policy makers would approve a quarter-point increase in the overnight lending rate to 0.5 percent. The yen had declined 1.4 percent versus the dollar and 11 percent against the euro in the past year as traders borrowed the currency to invest in higher- yielding assets, known as a carry trade.
``This is surprising, as half the markets expected no hike,'' said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd. ``This may cause some unwinding of carry trades, pushing up the yen.''
The yen rose to 119.84 a dollar at 1:37 p.m. in Tokyo from as low as 120.53 and from 120.02 in New York late yesterday. It climbed to 157.47 per euro from as low as 158.31. Japan's currency may rise to 119 a dollar, Mizuho's Fukui said.
Twenty-seven of 52 economists predicted Fukui and his colleagues would keep the rate unchanged, according to a Bloomberg News survey. The central bank normally makes the announcement between 12 p.m. and 2 p.m. Tokyo time. Governor Fukui will hold a press conference at 3:30 p.m. The NHK report didn't say whether the proposal had been approved.
``This is not the outcome of the meeting,'' wrote Glenn Maguire, chief Asian economist at Societe Generale in Hong Kong, in a note to clients. ``The executive proposes a recommendation which the policy board then votes on.''
Fukui said on Feb. 14 that the central bank will adopt a policy to achieve both sustainable growth and stable prices. Japan's economy expanded at the fastest pace in almost three years as consumer spending rebounded and business investment jumped, the Cabinet Office said on Feb. 15.
Split Decision
Japanese Finance Minister Koji Omi yesterday said it's important central bank policy supports economic growth. Prime Minister Shinzo Abe a day earlier said the Bank of Japan should ``take into consideration all factors, including risks.''
European central bankers have said that Japan's benchmark rate is too low, causing a drop in the currency. Japanese Trade Minister Akira Amari said in parliament today that a weaker yen isn't spurring exports and that the market is setting its value.
Traders have raised bets on an increase. Calculations by Credit Suisse Group showed a 59 percent chance of an increase, compared with 40 percent a week earlier.
Relative Rates
The yen traded at 234.14 against the pound from 234.68 yesterday. It stood at 94.33 versus the Australian dollar from 94.38. Against the New Zealand dollar, it was at 83.92 from 84.20.
The dollar may weaken on speculation a U.S. report today will show consumer prices rose at a slower pace in January, bolstering the Federal Reserve's case for a rate cut. Fed Chairman Ben S. Bernanke Feb. 14 said inflation pressures are ``beginning to diminish.'' The dollar traded at $1.3139 per euro from $1.3138.
Interest-rate futures contracts yesterday showed traders see an 83 percent chance of a cut to 5 percent in September, compared with 18 percent a week ago. Consumer prices gained 0.1 percent after a revised 0.4 percent increase a month earlier, according to a Bloomberg News survey. The Labor Department releases the figures at 8:30 a.m.
``The report will likely confirm what Bernanke suggested in his speech, that inflation pressures remain benign,'' said Sue Trinh, currency strategist at RBC Capital Markets in Sydney. ``That would likely see the dollar weaken'' to $1.3180 per euro and 119.50 yen today, she said.
European Rates
The euro may strengthen as signs growth is quickening. The German economy grew 0.9 percent in the fourth quarter from 0.8 percent in the third, the Federal Statistics Office in Wiesbaden may say tomorrow, when it reports the final figures, expected to be unchanged from the preliminary estimate.
ECB President Jean-Claude Trichet on Feb. 8 called for ``strong vigilance'' to maintain stable prices. The ECB will announce its next policy decision on March 8.
``The ECB has a hawkish stance, as it's set to hike rates next month,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo. ``The euro is likely to gain'' to $1.3190 today, he said.
To contact the reporter on this story: Kosuke Goto in Tokyo at
kgoto2@bloomberg.net
Last Updated: February 20, 2007 23:45 EST
