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Articles: Yen Drops with Japan Stocks

Posted by admin on Wednesday, July 14, 2004 - 02:14 AM

The yen fell one percent against the euro to five-week lows and weakened against the dollar on Wednesday, hurt by steep falls in Japanese share prices.
Stocks and stock futures fell across the world as Intel, the world's largest chip maker, said after the Wall Street closing bell it cut its profit margin forecast. The yen lost further ground after Sumitomo Trust said it was considering legal action against Japan's fourth-largest bank UFJ Holdings following news that third-ranked Mitsubishi Tokyo Financial Group (MTFG) would join forces with it. "The story of a challenge by Sumitomo to the Japanese bank merger and Intel's news about profit margins are hitting the yen," said Kamal Sharma, currency strategist at Dresdner Kleinwort Wasserstein. "Earnings news is having a bigger impact on the Japanese equity market and therefore on the yen than on the dollar." The euro hit its highest since June 8 at 135.29 yen by 0745 GMT. The dollar was also up more than half a percent from the U.S. close at 109.24 yen, near to one-week highs set in the previous session. The euro was trading at $1.2365, up a quarter percent from late New York levels and recovering losses made on Tuesday following stronger than expected U.S. trade data. The euro hit four-month highs of $1.2436 on Monday. The Nikkei stock average ended down 2.17 percent as falls in technology issues outweighed initial rises in banks on news of the MFTG/UFJ merger. The focus remains on technology stocks on Wednesday, with quarterly results due from U.S. companies Advanced Micro Devices, and Apple Computer. TRADE BOOST The dollar rose on Tuesday after the U.S. trade deficit, considered one of the biggest factors weighing on the currency, narrowed in May. As exports jumped, the trade gap narrowed to $45.95 billion -- below the $48.3 billion economists had forecast -- from $48.10 billion in April. Traders said they would look at upcoming U.S. economic data for clues on the pace of interest rate rises by the Federal Reserve, which lifted rates to 1.25 percent in June from a 46-year low. Kansas City Fed President Thomas Hoenig said late on Tuesday that the U.S. economy would grow by 4 to 4-1/2 percent this year, while he saw inflation remaining in the two percent range. Dallas Federal Reserve Bank President Robert McTeer said on Tuesday that recent gains in U.S. prices were probably just a blip and the U.S. could look forward to a prolonged period of growth with low inflation. June U.S. retail sales data are due at 1230 GMT, with economists expecting a 0.6 percent decline, according to a Reuters poll. MERGER TALK Yen bulls were initially encouraged by news of the merger between MTFG and UFJ. This would mark a milestone for financial sector reform, since UFJ had fallen well behind its major competitors in reducing non-performing loans and returning to profitability. But yen gains in Tokyo trade were short-lived. "The market was so short on the dollar that the market reaction to the merger talk quickly faded," said Kenji Kobayashi, senior forex manager at Bank of Tokyo-Mitsubishi in Tokyo. Sumitomo said in late Tokyo trade it was considering appropriate steps, including legal action, against UFJ for canceling plans to sell its trust bank unit to it. Sterling was steady against the euro and the dollar ahead of the release at 1130 GMT in Britain of an official committee's report on the inquiry into intelligence on Iraq's weapons of mass destruction.

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