12 July 2004, 11:57  Yen Rises to 2-Week High; Koizumi Wins Enough Votes to Keep Job

The yen rose to a two-week high versus the dollar in Europe after Prime Minister Junichiro Koizumi won enough seats in elections yesterday to stay in power and push ahead with his economic policies. The upper-house election result may help Koizumi, who has presided over the longest economic expansion in seven years, continue efforts to tackle record government debt and force banks to write off their worthless loans. The Nikkei 225 Stock Average rose 1.4 percent, after falling in four of the past five days on concern Koizumi may be forced to quit. ``The election's outcome was relatively positive for Koizumi, in contrast to what some polls had suggested,'' said Paul Mackel, a currency strategist in London at ABN Amro Holding NV. ``The market's attention will now revert back to Japan's positive economic situation.'' The yen may gain to 107 per dollar this week, he said.
The yen rose to 107.78 to the dollar at 8:15 a.m. in London, according to EBS, an electronic foreign-exchange dealing system, from 108.19 in New York Friday. It traded as high as 107.57, its strongest since June 28. Japan's currency also gained to 133.79 per euro, from 134.30. ``Investors will keep their bullish view, encouraging yen buying,'' said Shimpei Uike, who invests in overseas debt in Tokyo for Asahi Life Asset Management Co., with the equivalent of $10.5 billion. ``Current policies will be maintained.'' The may rise to 105 per dollar by the end of September, he said. Stocks also rallied after the Nihon Keizai newspaper on the weekend reported the Bank of Japan will probably say tomorrow the economy is growing faster than initially projected. The central bank will maintain its commitment to snuffing out six years of deflation by leaving monetary policy unchanged during a two-day board meeting that ends tomorrow, all 14 economists survey by Bloomberg News said.
`Times Are Difficult'
The ruling Liberal Democratic Party won 49 seats in upper- house parliamentary elections, below its target of 51 and compared with 50 for the opposition Democratic Party of Japan. Polls early last week suggested the governing party would fare badly enough to put Koizumi's job in jeopardy. The LDP-led coalition hung on to its majority in the less powerful chamber of the bi-cameral legislature. ``It's the job of the prime minister to continue even when times are difficult,'' Koizumi told TBS television. ``There was some anticipation Koizumi would be crushed, so this is mildly positive for the yen,'' said Mike Newton, currency strategist at HSBC Holdings Plc in Hong Kong. ``We will see 106.50 this week.''
Surplus
Japan's current-account surplus, the broadest measure of trade and investment, widened 21 percent in May to 1.89 trillion yen ($17.6 billion) compared with 1.56 trillion in April, the Ministry of Finance in Tokyo said. The surplus was above the 1.79 trillion yen median forecast of 10 economists surveyed by Bloomberg News. The current account report shows ``the Japanese propensity to earn more than they consume and export the extra to other countries, which constantly pushed the yen to appreciate,'' said Adrian Foster, currency strategist in Singapore at Dresdner Kleinwort Wasserstein. The yen's gains against the euro, pound and Swiss franc pushed those currencies down against the dollar. The U.S. currency earlier climbed from a three-month low against the 12- nation European currency after a chart traders watch to predict price changes suggested the euro's climb would stall. The euro's relative strength index against the dollar, derived by averaging out daily gains and losses over a fixed period, rose to 70.07 on a seven-day basis. A level above 70 suggests a currency's rise may be capped. Against the euro, the dollar was little changed at $1.2415, from $1.2414. It traded as low as $1.2424 Friday, its weakest since March 18.
Trade Gap
The dollar may drop against the euro on expectations government reports this week will show the U.S. trade deficit held at a record, retail sales slowed and producer prices increased at a smaller rate. Imports to the U.S. probably exceeded exports by $48.3 billion in May, according to the median forecast of economists surveyed by Bloomberg, suggesting more dollars will have to be swapped for other currencies. Signs of a slowing economy and cooling inflation suggest the Federal Reserve will keep to a ``measured'' pace of interest rate increases. ``Concerns over funding the trade gap remain dollar- negative,'' said Robert Rennie, currency strategist in Sydney at Westpac Banking Corp. ``As long as the Fed sticks to a go-slow approach in raising rates, the dollar will remain under pressure.'' The U.S. currency may fall to $1.25 per euro in the next several days, Rennie said.
`Decline Considerably'
Eighty-eight percent of the 89 traders, investors and strategists polled on Friday from Tokyo to New York advised buying or holding the euro against the dollar, up from 67 percent the previous week. Eighty percent said they would purchase or hold the yen, up from 76 percent. ``The dollar will have to decline considerably over the medium to long term,'' Laurence H. Meyer, 60, a former Fed governor and the author of ``A Term at the Fed: An Insider's View,'' said in a telephone interview from New York. The U.S. Commerce Department will release the trade figures tomorrow at 8:30 a.m. Washington time. One winner for the LDP was Heizo Takenaka, architect of Koizumi's economic policies and chief banking supervisor. The former Harvard academic, who had never previously been elected to parliament, was on a list of candidates elected according to the proportion of the national vote won by each party. ``Foreign investors are very focused on bank reform and the fact Takenaka won his seat will been seen as a vote of confidence,'' said Naomi Fink, currency strategist in Tokyo at BNP Paribas SA. ``The market may reward the yen.'' ///www.bloomberg.com

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