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Yen Softens on Quiet G-20 Communique
Monday, 20 November 2006 08:10:19 GMT  |  Terri Belkas, Currency Analyst
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How Did the Markets React? 

 

Over the past few days, Asian markets have been anxiously awaiting commentary regarding the depreciation of the yen out of the G-20 meeting this past weekend in Australia. However, when the topic wasn’t covered, FX market reaction was marked. The G-20 statement only managed to refer to “ensuring appropriate exchange-rate flexibility,” but stopped short of citing the yen's series of declines against the euro. Further crushing the yen was commentary by Hiroshi “Mr. FX” Watanabe, who told reporters in Sydney that the unwinding of carry trades are having a limited impact on the currency, which was previously a rumor cited for Friday’s yen rally. Meanwhile, Japanese fixed income markets responded swiftly to a 2.3 percent drop in the Nikkei 225 stock average which felt the effects of low expectations for upcoming banking sector earnings. 


 

 

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Bonds – Japanese 10-Year Government Bond Futures


Fixed income markets had little economic data to respond to today. However, 10-year JGB’s jumped to 101.139 as yields dropped to 1.680% over the course of a few hours. Traders fled to safety as the Japanese benchmark equity index plummeted on weak earnings expectations out of the banking sector. With JGB’s ended the day higher, prices staged a more bullish curve steepening amidst a lack of major economic data in this holiday-shortened week, as Japan’s financial markets will be closed Thursday for the Thanksgiving holiday.




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FX – EUR/JPY

 

Yen has softened against all of the 16 most active currencies today as the G-20 statement only referred to “ensuring appropriate exchange-rate flexibility,” stopping short of citing the yen's marked depreciation against the euro. Additionally, yen had posted solid gains last Friday amidst rumors that a large hedge fund had to unwind its large carry trades after its long oil/short yen position began to blow up. However, Hiroshi “Mr. FX” Watanabe dispelled the buzz when he commented that the unwinding of carry trades is only having a limited impact on the currency. With little economic data out of Japan to speak of, EUR/JPY surged to an eight year high of 151.66 while USD/JPY gained to 118.19 from Friday’s low of 117.48.



 


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Equities – Nikkei 225 Index


The Japanese stock market declined sharply as the Nikkei 225 index dropped below the 16,000 level for the first time in a week to 15,725.94. Meanwhile, the Topix fell 2.5 percent to 1,533.94, its lowest close since July, while the Mothers market of smaller growth stocks plummeted 6.2 percent to its lowest close of the year at 1,022.54. Weakness in equities was the result of fears that banks may have experienced slower growth in their core lending business, with Mizuho Financial down 3.1 percent to 823,000 yen and Mitsubishi UFJ, the world’s biggest bank by assets, down 2.8 percent to 1,380,000 yen. Falling crude prices near 17-month lows knocked shares of Japan’s largest upstream oil company, Inpex Holdings, down by 3.4 percent to 902,000 yen. Asian markets may also have been hit by comments from Taizo Nishimuro, head of the Tokyo Stock Exchange, as he said that one reason behind recent share price falls was the impending end to tax breaks on Japanese shares.

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