By Masataka Nakamura Tokyo, June 18 (BridgeNews) - The yen lost ground against the U.S. dollar and the euro, after the Bank of Japan downgraded its assessment of the economy. However, strong profit-taking selling pressures, coupled with corporate selling, limited the losses of the yen during the Asian time.
Dollar/yen fell from 123.12 to an intraday low of 122.77 mainly on profit-taking selling and sporadic offers from Japanese exporters. Options-related selling put additional downward pressure on the pair. Dealers said after a sharp rise on Friday--from a global low of 120.85 to a high of 123.25--there is strong profit-taking interest especially above the 123 figure.
However, amid bullish sentiment for the pair, buying on dips emerged on the downside when the dollar was near the 122.80 area. Masakazu Bunno, assistant general manager at international trading department at Sumotomo-Mitsui Banking corporation said that there was a feeling in the market that the dollar/yen was resilient, facing relatively strong profit-taking selling pressures.
In the afternoon, the yen was offered against the dollar and euro further after the Bank of Japan downgraded its economic assessment in the June report. Masakazu Bunno, assistant general manager at international trading department at Sumotomo-Mitsui Banking Corporation said that the BOJ report underpinned the dollar/yen and the euro/yen in the afternoon session, as it reinforced bearish yen sentiment.
However, the price action after the report was restrained somewhat, as there were strong profit-taking selling pressures of dollar/yen above the 1213.10 area. The Bank of Japan on Monday slightly downgraded its economic assessment for June, compared to its May report. The latest BOJ monthly report released Monday said that adjustments in economic activities are gradually intensifying because production is substantially declining due to slowing exports. The BOJ also said the corporate situation remains severe, adding that capital spending is likely to fall. It also said that downward pressures on prices may increase.
Euro/yen also saw good buying pressures on dips. Some U.S. buying was spotted on the cross's rebound from an intra-day low of 105.97 to around 106.15. U.S. funds were also spotted buying the cross after the BOJ monthly report. In addition, the cross was underpinned by a rise in the dollar/yen
Euro/dollar had a quiet session, moving in a range of 0.8625 and 0.8642. Euro/yen buying supported the cross, but the market lacked the momentum to break the 0.8650 area. The Japanese stock market was also quiet and had little impact on the foreign exchange market.
Shares ended Monday's session slightly lower as networking issues broadly lost ground on concerns over the industry profit outlook following profit warnings from Nortel Networks. The Nikkei 225 Stock Average fell 92.59 points, or 0.72%, to 12,697.79.
The ratio of Japanese shares in the securities portfolio at Japan's seven major life insurance companies fell to an average 29.4% as of the end of March, compared with 52.2% as of the end-March 1994, the Nihon Keizai Shimbun reported over the weekend. On the other hand, the ratio of Japanese bond holdings rose to 50.6% from 29.4% in the same period, the report said. The lifers plan to reduce the stockholdings in their portfolio to cut risks to their investment from price volatility. The plan may negatively impact demand and supply condition on the Japanese stock market.