The yen marched to a four-month high on the euro on Thursday, emboldened by growing confidence in Japan's economy and lack of official resistance, while the single currency suffered speculation over lower euro zone rates. Optimism over Japan's recovery, already buoyed by upbeat growth figures, got another boost on Wednesday after ratings agency Standard & Poor's revised its outlook on Japan up to stable from negative. That helped the yen to a fresh one-month high on the dollar, taking it above 106.00 yen on Thursday, and left market players wondering nervously if Japanese monetary authorities had given up large-scale official intervention to deter the yen from rising and endangering the country's export-led recovery. "People are looking at dollar/yen to see if the Bank of Japan is still alive or has completely abandoned ship," said Peter Fontaine, currency strategist at KBC in Brussels.
"On the euro we have a really big story fundamentally with concerns growing in the euro zone that the ECB may be cutting rates. Euro/dollar has broken out of a sideways range and the test should be the $1.2050 area low for the year." By 0855 GMT, the euro was flat on the day at $1.2120 , just above an earlier three-week low. It shed two cents on Wednesday after European Central Bank officials hinted that an interest rate cut would not be out of the question if consumer spending failed to pick up, and a fall through $1.2056 would take it back to early December levels. Against the yen it was steady at 128.48 yen while the dollar fell to 105.78 yen , its weakest since February 18, before recovering to 106.16. A fall below 105.14 would take it back to levels not seen since late 2000.
POLICYMAKERS ON THE PLATFORM
ECB President Jean-Claude Trichet speaks in the U.S. at 2100 GMT and investors will be anxious to see whether he expands comments to a German business newspaper on Tuesday that the ECB would reassess its outlook for gradual euro zone recovery if consumer spending fails to pick up. These were the comments that prompted the euro's initial losses on Wednesday. German Economics Minister Wolfgang Clement is also due to speak early on Thursday. From the U.S. side, Federal Reserve Chairman Alan Greenspan speaks at 1400 GMT, Treasury Secretary John Snow at 1500 GMT and a batch of Fed officials, including New York Fed President Timothy Geithner and St. Louis President, William Poole all take the podium later in the day. U.S. initial jobless claims are due at 1330 GMT, with analysts predicting 335,000 new filings. Revised fourth quarter U.S. gross domestic product figures are also due at 1330 GMT.
YEN POPULARITY
Traders are trying to fathom why Japanese authorities have not stepped in heavily to block yen gains against the dollar this week after they spent record amounts of yen last year and in the first two months of this year to stop it from rising. Market sources said the authorities, acting through the Bank of Japan, had intervened intermittently in the foreign exchange market on Thursday, selling the yen and buying dollars. But dealers said the yen looked set to strengthen further with intervention, or market speculation about such action, almost the only factor in its way. Japan's top financial diplomat, Zembei Mizoguchi, said Tokyo's forex policy was unchanged, reminding the market yet again that it was ready to act. But analysts said Japan was going to find it difficult to stop the yen's advance. "As the euro is weakening, Japan won't be able to stop the yen's rise just by intervening in dollar/yen," said Yasunari Ueno, chief market economist at Mizuho Securities.
Dealers noted global funds keep flowing into Japan, with foreigners buying a record 1.1483 trillion yen ($11 billion) of Japanese stocks in the week ended March 19. The yen was also seen getting a minor boost from better-than-expected Japanese trade balance data for February, with the surplus rising 51.7 percent from a year earlier. Sterling was also in the markets' sights with Bank of England Governor Mervyn King and deputy governors Rachel Lomax and Andrew Large appearing before the Treasury Select Committee from 0930 GMT. Sterling has been buoyed in recent months by speculation that interest rates have further to rise after two hike in November and February which took UK rates to 4.0 percent.///