TOKYO (AFX-ASIA) - The yen continued to gain ground in midafternoon trade on the rebalancing of global portfolios by international investors, dealers said.
SG Yamaichi Asset Management head of research Akio Yoshino said global portfolios managers will try to shift out of "underweight" positions in Japan equities due to "an unexpectedly weak performance of the euro and U.S. high-techs."
"The recent profit-warning by Sun Microsystems eliminated any euphoria over prospects for the U.S. high-tech sector, thereby encouraging investors to look at investment opportunities in Japanese equities," he said.
"In particular, they are urged to relocate funds that were invested in european assets to Japanese equities."
Low expectations of coordinated action by the Japanese, U.S. and European authorities in the foreign exchange market may also support further strengthening of the yen in the near-term, dealers said. "Apparently, the U.S. authority is not interested in taking any action, give n the fact that the depreciation of the euro has pushed up the effective exchange rate of the dollar, thereby deteriorating price competitiveness of U.S. exporters," Yoshino said.
Finance Minister Masajuro Shiokawa said today the ministry may need to take some action if the foreign exchange market moves wildly, but the government should avoid stepping into the market if the movement is "ordinary".
SG Yamaichi's Yoshino said he now expects the yen to strengthen to the 115 yen level, citing also the possible change in sentiment towards Japanese economic fundamentals.
"While the pessimism over the Japanese economy is still rife, relatively solid consumer spending may eventually encourage investors to re-assess such a view," he said.
The euro, meantime, was lower ahead of the European Central Bank's meeting today, dealers said.
"The ECB, given wariness about the adverse impact on European exporters, may not take any action now," Yoshino said.