Japan’s trade balance for May showed the third-largest deficit ever for any month, with the red-ink streak extending to an 11th month as the depreciation of the yen continued to push up import prices despite a sharp rebound in exports, the government said Wednesday. The JPY is trading at 95.28, but in May the currency was valued in the low 100’s which will have a negative effect come June’s data. The higher the yen the less competitive exporters can be. Ever since the Bank of Japan decision last week to hold its current policy, the stock market and the currency markets have reacted, as they were expecting more aggressive action by the BoJ to support the turnaround in their economy which is beginning to show positive signs many investors think the Bank slowed down too soon, especially after receiving the backing of the World Bank, the IMF and the OECD combing with the blessing of the G8, the G20 and the G7. The dollar was firmer versus the yen in Tokyo after it slid as low as around ¥94.30 in late New York trading Monday night on a Financial Times article that Fed Chairman Ben Bernanke was likely to signal that the U.S. central bank is close to tapering down its asset purchases. The greenback was backed by purchases by Japanese importers as well as solid U.S. economic data released Monday, traders said.
Yesterday the dollar’s upside was capped by the lack of upward momentum in Tokyo stock prices, traders said. But after European players joined trading in late hours, the dollar gained ground in line with the euro’s rise. Market players were focusing on a news conference by Bernanke due later today following the end of the Federal Open Market Committee meeting, after he said in a congressional hearing late last month that the Fed could slow down asset purchases over the next few FOMC meetings.
The euro climbed to a 4-month high versus the dollar, to trade at 1.34 after a survey showed German analyst and investor sentiment rose for a second consecutive month in June, suggesting Europe’s largest economy is on track for a modest recovery. The euro closed at 1.3394 and remains flat this morning. The ICE dollar index, which tracks the greenback against six major rivals, edged higher to 80.64 from 80.619 on late Monday and remains flat this morning.
German Bunds declined on Tuesday, in line with US Treasuries on speculation that the Federal Reserve might signal trimming its bond purchases at a meeting this week.
The big mover and shaken on Tuesday was the Great British Pound that at one time had tumbled close to 120 points. The latest headline UK inflation figure lead the way in the early part of the session, providing a fair wind for the Pound. The May Consumer Price Index figure revealed that rate of British price increases jumped from 2.4% in April to 2.7% last month. The release appears to make a vote by the Bank of England monetary policy committee to add to its £375bn Quantitative Easing program an unlikely prospect in the short term. However, new Bank of England Governor, Mark Carney, takes over at the next meeting. The pound is trading this morning at 1.5630 off its recent highs in the upper 1.57 range.