The yen rebounded against the dollar and euro on Tuesday as the effects of hawkish comments at the weekend from U.S. Treasury Secretary John Snow wore off and recent reasons for buying the Japanese currency resurfaced.
Snow boosted the dollar in the previous session, when his comments to a British newspaper were taken as a sign that Washington sought higher interest rates and was not looking to weaken the dollar.
U.S. administration officials said Snow's rate comments were not reflective of Washington's policy and were merely an observation about the economy. Meanwhile analysts said the U.S. trade and budget deficits remained worrisome for the dollar, regardless of the treasury secretary's statements.
Tuesday's quieter mood on the foreign exchanges was also helped by leaders of the 21-member Asia-Pacific Economic Cooperation (APEC), who did not discuss currencies in a communique issued after a two-day summit.
"There has not been a lot going on since we had the volatility following Snow's comments," said Niels Christensen, currency strategist at Societe Generale in Paris. "The market still expects further falls in the dollar.... People are hedging against further dollar losses."
At 5:30 a.m. EDT, the yen was up nearly half a percent on the day versus the dollar and a third of a percent against the euro.
It had pulled up to 109.61 per dollar from Monday's lows of 110.58, and traded as high as 127.53 per euro, versus the previous day's trough of 128.80.
Meanwhile, the euro was slightly up against the dollar at $1.1642, but holding well within recent ranges.
SNOW IMPACT FADING
Snow's comments gave the dollar a temporary lift.
The greenback had stabilized after being sold off heavily in the wake of a September statement by the Group of Seven industrial powers calling for flexibility in exchange rates. The market has read the call as disapproving of Japan's efforts to beat down the yen against the dollar.
Snow's comments were quickly followed by White House spokesman Trent Duffy who said he was "not making a policy statement, only an observation that as the economy strengthens, it is likely that interest rates could rise."
However, some analysts said that although Snow could not affect the Federal Reserve's interest rate policy, markets were already on the lookout for clues when U.S. borrowing costs will rise.
"The market will be sensitive to what Fed governors are saying. Though rate hikes are off the cards for now, the Fed will raise them and the risk is that it could happen in the second half of 2004," said Paul Mackel, currency strategist at ABN Amro in London.
Federal Reserve Board Governor Susan Schmidt Bies was scheduled to speak at 1:45 p.m. EDT in Las Vegas before a bankers' convention.
Richmond Federal Reserve Bank President Alfred Broaddus said on Monday he had grown a little less guarded in his optimism on the U.S. economy in recent weeks, but a lack of jobs could still undermine the recovery.
The Treasury Department said on Monday the U.S. government posted its largest budget gap in history in the just-ended 2003 fiscal year, amassing $374.22 billion in red ink.
That broke the previous record of $290.4 billion in the 1992 budget year. As a percentage of the economy, the deficit totaled 3.5 percent, the largest since 1993.
YEN STILL STRONG
Despite reduced pressure on the dollar, which had fallen nearly eight percent from mid-September highs to three-year lows near 108.25 yen earlier this month, traders saw limited scope for a further rebound in the near term.
When the dollar rises above 110 yen, Japanese exporters who need to convert their dollar-denominated revenue for the business year to March can lock in their conversion rate at around 110 yen, a round number, by using forward contracts.
"Exporters are selling as soon as they see any upside," said Christensen at Societe Generale.
The three-month forward discount is currently about 0.3 yen.
The president of Toyota Motor Corp said on Tuesday it was difficult to say what dollar-yen rate was appropriate, but somewhere between 110 to 120 yen was reasonable when comparing labor costs in Japan and the United States.
Japan's Finance Minister Sadakazu Tanigaki said on Tuesday that the yen's recent dip against the dollar would not change the country's policy toward its currency.
Snow boosted the dollar in the previous session, when his comments to a British newspaper were taken as a sign that Washington sought higher interest rates and was not looking to weaken the dollar.
U.S. administration officials said Snow's rate comments were not reflective of Washington's policy and were merely an observation about the economy. Meanwhile analysts said the U.S. trade and budget deficits remained worrisome for the dollar, regardless of the treasury secretary's statements.
Tuesday's quieter mood on the foreign exchanges was also helped by leaders of the 21-member Asia-Pacific Economic Cooperation (APEC), who did not discuss currencies in a communique issued after a two-day summit.
"There has not been a lot going on since we had the volatility following Snow's comments," said Niels Christensen, currency strategist at Societe Generale in Paris. "The market still expects further falls in the dollar.... People are hedging against further dollar losses."
At 5:30 a.m. EDT, the yen was up nearly half a percent on the day versus the dollar and a third of a percent against the euro.
It had pulled up to 109.61 per dollar from Monday's lows of 110.58, and traded as high as 127.53 per euro, versus the previous day's trough of 128.80.
Meanwhile, the euro was slightly up against the dollar at $1.1642, but holding well within recent ranges.
SNOW IMPACT FADING
Snow's comments gave the dollar a temporary lift.
The greenback had stabilized after being sold off heavily in the wake of a September statement by the Group of Seven industrial powers calling for flexibility in exchange rates. The market has read the call as disapproving of Japan's efforts to beat down the yen against the dollar.
Snow's comments were quickly followed by White House spokesman Trent Duffy who said he was "not making a policy statement, only an observation that as the economy strengthens, it is likely that interest rates could rise."
However, some analysts said that although Snow could not affect the Federal Reserve's interest rate policy, markets were already on the lookout for clues when U.S. borrowing costs will rise.
"The market will be sensitive to what Fed governors are saying. Though rate hikes are off the cards for now, the Fed will raise them and the risk is that it could happen in the second half of 2004," said Paul Mackel, currency strategist at ABN Amro in London.
Federal Reserve Board Governor Susan Schmidt Bies was scheduled to speak at 1:45 p.m. EDT in Las Vegas before a bankers' convention.
Richmond Federal Reserve Bank President Alfred Broaddus said on Monday he had grown a little less guarded in his optimism on the U.S. economy in recent weeks, but a lack of jobs could still undermine the recovery.
The Treasury Department said on Monday the U.S. government posted its largest budget gap in history in the just-ended 2003 fiscal year, amassing $374.22 billion in red ink.
That broke the previous record of $290.4 billion in the 1992 budget year. As a percentage of the economy, the deficit totaled 3.5 percent, the largest since 1993.
YEN STILL STRONG
Despite reduced pressure on the dollar, which had fallen nearly eight percent from mid-September highs to three-year lows near 108.25 yen earlier this month, traders saw limited scope for a further rebound in the near term.
When the dollar rises above 110 yen, Japanese exporters who need to convert their dollar-denominated revenue for the business year to March can lock in their conversion rate at around 110 yen, a round number, by using forward contracts.
"Exporters are selling as soon as they see any upside," said Christensen at Societe Generale.
The three-month forward discount is currently about 0.3 yen.
The president of Toyota Motor Corp said on Tuesday it was difficult to say what dollar-yen rate was appropriate, but somewhere between 110 to 120 yen was reasonable when comparing labor costs in Japan and the United States.
Japan's Finance Minister Sadakazu Tanigaki said on Tuesday that the yen's recent dip against the dollar would not change the country's policy toward its currency.
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