Yen weakens on uncertainty over PM Koizumi’s fate
TOKYO, Aug 8 - The yen weakened broadly on Monday as Japan’s parliament appeared increasingly likely to vote down postal reform bills that could prompt Prime Minister Junichiro Koizumi to call a snap election. Over the weekend more upper house members of the ruling Liberal Democratic Party said they would vote against the bills, tipping the odds against their passage and raising worries about a political shake up.The Japanese currency hit a fresh three-month low against the euro, a seven-year low versus the Australian dollar, and inched closer to a seven-year trough versus the Korean won.
The yen, Tokyo stocks and Japanese government bonds have all come under pressure in the days leading to the upper house vote on the bills to privatise Japan’s sprawling postal system, long championed by Koizumi.
The vote is expected after the upper house session starts at 0400 GMT.
Koizumi has repeatedly said that a rejection would be tantamount to a vote of no-confidence — a tacit threat to call a lower house election that could risk the long-ruling LDP losing power.
If the bills are rejected and a snap election called, the yen would likely get caught in a tug-of-war between upbeat economic data and political uncertainty, said Masamichi Koike, joint general manager in the trading department at Sumitomo Mitsui Banking Corp.
“A political vacuum would invite all kinds of speculation … and if foreign investors dump Japanese shares, the yen’s slide could intensify,” he said.
At 0255 GMT, the dollar bought around 112.40 yen, up 0.4 percent from the level in late U.S. trade on Friday.
The euro was at 138.65 yen after rising to around 138.75 yen, its highest level since late April. It bought 138.36 yen in late U.S. trade.
The single currency could reap further gains if the dollar rises against the yen on the prospect of a snap election in Japan, traders said.
The euro was down slightly at $1.2340. It hit a two-month high of $1.2403 on Thursday.
Some traders said the U.S. currency was boosted also on speculators building long dollar positions on expectations it would rise if the bills are rejected, with a view to taking profits at around 112.80-113.20 yen shortly after the vote.
“The dollar is likely to edge higher against the yen as more players start shorting the yen in anticipation of the bills not being passed, and the risks that follow,” said Tatsuro Karitani, a senior trader at Mizuho Corporate Bank’s forex division.
He said the dollar could rise past a recent key resistance of around 113.70 yen within a couple of days after the vote and hit 115 yen within a week or so if it becomes clear that Koizumi will call an election.
Some traders said the dollar’s rise could be shackled.
“If the bills are turned down, yen selling is likely to intensify in London and New York trade, but losses in the yen should be limited as focus returns to recent solid economic data in Japan,” said a trader at a Japanese bank.
RATE SUPPORT
Others said the dollar could keep its firm tone due to prospects of rising interest rates in the United States.
The dollar got a boost on Friday after the July U.S. jobs report came in stronger than economists had forecast, reinforcing expectations that the Federal Reserve would lift interest rates at least a few more times.
The Fed will meet on Tuesday when another 25 basis point increase to 3.5 percent is widely expected. It has raised the fed funds rate nine straight times since June 2004.
In July, 207,000 jobs were created, exceeding expectations for 183,000. The two previous months’ figures were also revised up, providing further evidence of solid growth.
Written by admin on August 8th, 2005 with
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