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Yen Advances as Aso Damps Bets on Corporate Tax Cut; Pound Gains - (Bloomberg)

Posted by Chris Advincula on Sep 27, 2013 5:30:00 AM

The yen advanced, heading for its second weekly gain versus the dollar, after comments by Japan’s Finance Minister Taro Aso damped bets the government will cut corporate taxes, boosting demand for the currency as a haven.

The yen reversed yesterday’s drop against the U.S. currency as Aso said a reduction needs to be considered from a medium- to long-term perspective. The pound strengthened toward an eight-month high against the dollar after Bank of England Governor Mark Carney told a U.K. newspaper he sees no case for further stimulus. South Korea’s won rose, set for its biggest monthly gain in almost two years.

“It’s a question of cutting taxes or not,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt, referring to Japan’s fiscal policy. “Views are changing. They expected them to cut corporate tax and then we get information that won’t be the case in the medium term. There is no clear direction.”

The yen appreciated 0.5 percent to 98.54 per dollar as of 9:08 a.m. London time. It strengthened 0.4 percent to 133.04 per euro. The 17-nation currency was little changed at $1.3503.

The yen has fallen 0.4 percent versus the dollar this month, paring its quarterly advance to 0.6 percent. It has lost 2.5 percent against the euro this month and is down 3.2 percent this quarter.

Aso told reporters today that funding sources would be needed if corporate tax rates were to be reduced. Kyodo News reported yesterday that the government of Prime Minister Shinzo Abe had pledged to begin a study on cutting the corporate tax, without naming any sources.

Dollar Index

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, was little changed at 1,014.24, leaving its monthly decline at 1.9 percent.

Carney told the Yorkshire Post that the central bank would consider expanding its assets-purchase target, known as quantitative easing, should the economic recovery falter.

“Given the recovery has strengthened and broadened, I don’t see a case for quantitative easing and I have not supported it,” he said, according to the newspaper.

The pound increased 0.3 percent to $1.6082 after climbing to $1.6163 on Sept. 18, the highest since Jan. 11. Sterling gained 0.2 percent to 83.94 pence per euro after appreciating to 83.53 pence on Sept. 18, the strongest since Jan. 17.

“This sits with the tone we’ve seen recently from the Bank of England, where there was an absence of very dovish rhetoric,” said Jane Foley, senior currency strategist at Rabobank International in London. “The message is that there may be further asset purchases should the recovery stall, but the data suggest that things are returning to normal. The market has quashed most of its hopes that there could be more QE,” supporting the pound.

South Korea’s won gained versus 13 of its 16 major peers as data showed foreign funds pumped money into the nation’s stocks.

The won rose 0.1 percent to 1,073.65 per dollar, poised for a 3.3 percent surge in September. Overseas investors bought $6.8 billion more South Korean equities than they sold this month, exchange data show.


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