The yen hit five-week lows against the euro and eased against the dollar on Friday as Japanese share prices fell on worries about Beijing's attempts to cool China's red-hot economy. The yen took a hit from a fall of 2.02 percent in Tokyo's benchmark Nikkei stock average, though it managed to recover against the euro and dollar by mid-European morning. The stock losses came after a Japanese market holiday on Thursday and were in part a late reaction to comments to on Wednesday by Chinese Prime Minster Wen Jiabao that China needed to take forceful measures to cool down its economy. "Any slowdown in China is generally perceived as negative for the yen and negative for the Australian dollar -- either through a lower level of commodity prices or through a lower level of exports to the Chinese mainland," said Mark McFarland, currency strategist at UBS.
By 1025 GMT, the yen had erased the worst of its losses, holding steady on the day at 131.66 per euro after earlier falling to 132.06, its lowest since March 22. The dollar, itself recovering from broad losses in the wake of slower than expected U.S. economic growth figures on Thursday, traded nearly a quarter percent higher on the day at 110.17 yen . However it remained off the day's high of 110.57 and Thursday's six-week highs just above 111 yen. Potentially weighing against the yen, there was also fresh speculation China's central bank would ramp up efforts to moderate sizzling growth, with the South China Morning Post reporting it could soon raise bank lending rates by half a percentage point. But the Japanese currency held steady after the Ministry of Finance said Tokyo did not engage in foreign exchange intervention in April. This compared with a March yen-selling total of 4.7026 trillion yen ($42.93 billion) aimed at softening the currency against the dollar and protecting the country's export-led recovery. Japanese financial markets, in the middle of the "Golden Week" holidays, will close again for the first three days of next week. The euro scaled back from nine-day highs of $1.1982 against the dollar hit on Thursday after data showing U.S. first-quarter growth was 4.2 percent, against a 5.0 percent forecast. On Friday it traded a touch lower at $1.1945 .
INFLATION UP
Expectations the United States will soon raise interest rates from the current 46-year low of 1.0 percent remained on the boil after the gross domestic product (GDP) report also showed the Fed's favoured inflation measure, the core personal consumption expenditure index, rose to 2.0 percent from 1.2 percent. Dealers said the lower than expected GDP growth brought the dollar down on Thursday even though it did not raise worries the economy was in trouble. "It's not any sign that the U.S. economy is slowing down," said Niels Christensen, currency strategist at Societe Generale in Paris. "The short futures contracts continue to price in quite aggressive U.S. rate hike expectations." "They are still looking for almost 50/50 chance of a rate hike at the June (Federal Reserve) meeting and a hike in August is fully priced. After yesterday's data these expectations were pushed a little bit higher." The University of Michigan's consumer sentiment survey at 1345 GMT is expected to show that U.S. consumers regained some of their optimism over the course of April. Analysts are looking for a drop in the consumer sentiment index to 94.0 from a final reading in March of 95.8 but this would mark an increase from the beginning of April when the index was as low as 93.2. Euro zone economic sentiment unexpectedly rose to its highest since mid-2001 in April as business turned more upbeat despite stagnant consumer morale, the European Commission said, though the data gave no apparent boost to the euro.///