LONDON - The yen registered hefty losses against major currencies in early London trade as doubt grew about measures taken by the Japanese government to resolve blockage in Japan's financial system, dealers said. There remains great scepticism over the Bank of Japan's unprecedented initiative to tackle the equity crossholdings problems, they added. "The focus is clearly on the yen as the weakest currency out there," said Steve Pearson, chief strategist at HBOS Treasury Financial Services. "People are becoming increasingly uncomfortable over the implications of policies in Japan," he added.
Separately, last night's Japanese 10-year Government Bonds (JGB) auction failure came as another symptom of investors' concerns towards the Japanese outlook. There are signs that markets' appetite for JGBs are becoming satiated, which is seriously affecting sentiment on the yen, said Pearson. "The outlook doesn't look great. Japan is facing the risk of capital losses and enhanced risk of fixed income losses as we see further shift out of JGBs by foreign investors," he said. This, in turn, is likely to put downward pressure on the yen, he added.
The major investors of JGBs are European and UK investors, which would explain the spike higher in European currencies versus the yen, said Pearson. In the UK, investors were awaiting a speech by the Bank of England governor Sir Eddie George at a conference in the West Middlands, at 10.00 am. Investors are on high alarm for any shift in policy, particularly in the light of yesterday's strong retail sales figures, said Pearson. Elsewhere the Norwegian krona was one of the main beneficiaries from ongoing tensions between the US Administration and Iraq. Against both the euro and the dollar, the norwegian krona looks set to make new year highs.
Year to date, the norwegien krona has rallied nearly 20 pct against the dollar, and 9 pct against the euro. "A combination of rising oil prices, attractive yields and a strong current account surplus position have once again contributed to the strengthening of the norwegian krona," said Kamal Sharma, analyst at Commerzbank.// www.afxpress.com