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Yen Falls as Abe Gets Sales Tax Backing; Aussie Climbs - (Bloomberg)

Posted by Chris Advincula on Sep 2, 2013 7:40:00 AM

The yen fell to the lowest level in a month against the dollar as Japan’s Prime Minister Shinzo Abe won backing for a sales-tax increase, signaling he is making progress on policies that have helped weaken the currency.

The Japanese currency slid at least 0.9 percent versus all of its 16 major peers as the prospects of an imminent military strike on Syria faded, boosting demand for higher-yielding assets. Australia’s dollar gained after an index of Chinese factory output rose to a 16-month high, boosting trade prospects. The pound strengthened to a two-month high versus the euro after a report showed a gauge of U.K. manufacturing expanded at a faster pace than forecast last month.

“The increased likelihood of the implementation of the sales tax as planned may also, at least initially, help to reinforce confidence in ongoing economic reform agenda in Japan, weighing upon the yen,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The improvement in global investor risk sentiment is leading to the reversal of the yen’s recent safe-haven driven gains. The surveys are helping to reassure investors that the economic slowdown in China at least appears to have stabilized in the near term.”

The yen weakened 1.1 percent to 99.28 per dollar at 11:05 a.m. London time after reaching 99.43, the lowest level since Aug. 2. Japan’s currency depreciated 1.1 percent to 131.23 per euro. The euro was little changed at $1.3221.

U.S. financial markets are closed today for a public holiday.

Sales Tax

Abe is trying to sustain an economic recovery driven by fiscal and monetary stimulus as he moves on to tackling changes such as deregulation needed for a longer-term revival in Japan.

A majority of those in seven consultative panels favored proceeding with an increase of the 5 percent sales tax in April, Economy Minister Akira Amari told reporters on Aug. 31 after the final group met. Members of the panels, which were set up by the government, called for “sufficient stimulus,” he said.

Abe said today he’ll make a decision on the tax this autumn, taking the opinions of the panels into account.

“I expect a sales-tax hike to sustain optimism toward Abenomics, resulting in a weaker yen,” said Kengo Suzuki, the chief currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest bank, referring to Abe’s economic policies. “For Japan’s monetary, fiscal and growth policies to be properly executed, a higher levy is needed, and an increase in the sales tax can be seen as the key to these three arrows of Abenomics.”

Bearish Bets

Traders increased bets the yen will weaken, according to data from the Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a decline in the currency compared with those on a gain -- so-called net shorts -- was 78,353 on Aug. 27, compared with 71,721 a week earlier.

China’s Purchasing Managers’ Index of manufacturing rose to 51 last month, the highest since April 2012, the National Bureau of Statistics and China Federation of Logistics said in Beijing yesterday.

HSBC Holdings Plc and Markit Economics’ PMI for China rose to 50.1 last month from 47.7 in July, final readings released today showed. A reading above 50 indicates growth. China is Australia’s biggest trading partner.

China’s economy is looking solid and that’s very good news for global growth,” supporting risk appetite, said Mizuho’s Suzuki.

The Aussie dollar advanced for the first time in six days versus the greenback, gaining 1.1 percent to 89.99 U.S. cents.

Pound Gains

The pound climbed as Markit Economics and the Chartered Institute of Purchasing and Supply said manufacturing output, based on a survey of purchasing managers, rose to 57.2 in August from a revised 54.8 a month earlier. The median estimate in a Bloomberg survey of economists was for a reading of 55.

The pound appreciated 0.5 percent to 84.88 pence per euro after reaching 84.72 pence, the strongest level since June 26. Sterling rose 0.5 percent to $1.5576.

The U.S. currency fell against most of its major counterparts as President Barack Obama said he will seek approval from Congress for military action against Syria.

The dollar will rise to 103 yen and $1.28 per euro by the end of the year, analysts in Bloomberg surveys forecast.

“We’re pretty comfortable with dollar-yen at 105 in a year’s time,” said Nick Verdi, a currency strategist at Barclays Plc in Singapore. “What everybody is pinning their hopes on is a U.S.-led recovery.”

The euro was little changed versus the dollar after data showed manufacturing in the 17-nation currency bloc expanded at the fastest pace in more than two years.

A final reading on a manufacturing index by Markit Economics based on a survey of purchasing managers showed an increase to 51.4 in August, the highest since June 2011.

The European Central Bank will set monetary policy on Sept. 5. ECB policy makers are forecast to keep interest rates unchanged at a record-low 0.5 percent, according to the median estimate of economists surveyed by Bloomberg. 

 

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