Yen Little Changed as Bank of Japan May Leave Rate Unchanged
July 12 --
The yen was little changed before a Bank of Japan policy meeting that will probably leave the benchmark interest rate unchanged at 0.5 percent, the lowest among major economies.
The currency traded near a record low against the euro as traders borrow in Japan to fund investments in higher-yielding assets, known as carry trades. The central bank should consider risks to economic growth when deciding whether to raise rates, Chief Cabinet Secretary Yasuhisa Shiozaki said July 10.
``Hawkish dissent today would suggest an August move, but I don't think it will happen,'' said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. ``
The meeting is going to be more reason to sell yen.''
The yen traded at 122.28 per dollar at 9:32 a.m. in Tokyo, after slumping from a one-month high of 120.99 per dollar yesterday. The yen was at 168.11 per euro, approaching the record low of 168.51 yen on July 9. It may decline to 170 per euro this month, Rennie said.
Japan's currency dropped the most in a month versus the dollar yesterday after stocks in the U.S. rallied, as concern abated that a weakening U.S. housing market will cause investors to shun riskier assets. It had reached a one-month high after Moody's Investors Service's cut ratings on $5.2 billion of bonds backed by subprime mortgages.
Volatility implied by one-month dollar-yen options fell to 7.2255 percent from a two-week high 7.95 percent yesterday. Lower volatility may encourage carry trades as it suggests the bets are exposed to lesser exchange-rate fluctuation risk.
Weaker Statement
The Standard & Poor's 500 stock index gained 0.6 percent yesterday, paring a 1.4 percent slide after the ratings cut.
The U.S. benchmark rate is 5.25 percent and the euro area's is 4 percent. Investors tend to take on carry-trade bets when they have a bigger appetite for risk and exit the strategy when they see a greater chance of losses.
BOJ Governor Toshihiko Fukui and his colleagues will leave the key rate unchanged when a two-day meeting ends today, according to all 43 economists surveyed by Bloomberg News.
A separate survey of 34 economists showed 21 expect the central bank to raise the rate to 0.75 percent in August.
Japan's jobless rate is at a nine-year low, household spending rose for a fifth month in May and retail sales gained for the first time in eight months. Consumer prices excluding food and energy, a key indicator of inflation, fell 0.3 percent in the 12 months through May.
``
The risk is that the BOJ may come out with a weaker statement,'' said Robert Fullem, vice president of U.S. corporate currency sales at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``The economic numbers don't justify a rate hike.''
The yield advantage on benchmark 10-year U.S. Treasury notes over comparable-maturity Japanese government bonds rose the most in three years yesterday, by 14 basis points to 321 basis points. A basis point is 0.01 percentage point.
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