Yen pares sharp losses
SHEEL KOHLI in London
The Japanese yen's dramatic fall against the US dollar appeared to have paused yesterday after profit-takers stepped in and the market sought to correct itself from last week's dollar rally.
After a week when the dollar soared more than three yen to reach a peak of 135.42 - its highest level in 6.5 years - the dollar fell back to 134.6 yen in early New York trade yesterday, with some concerns in the market that US economic growth may be slowing.
Following the release of US non-farm payrolls for last month, which showed a 36,000 drop in jobs, some traders said they detected a note of caution in the dollar-yen buying.
Analysts said this was likely to be an over-interpretation of the data and that it should provide encouragement that a more balanced jobs growth might be developing in the US economy.
'In the month ahead, the fall in payrolls growth will also feed in lower personal incomes and industrial production, but it still remains unclear as to whether this is a permanent shift to lower levels of activity or just a pause,' Standard Chartered economist Claudio Piron said.
Yesterday, Japanese Prime Minister Ryutaro Hashimoto, who came under criticism in London last week for failing to take strong steps to boost the economy, told a parliamentary committee that he would respond boldly and flexibly to changing economic conditions.
'We have heard it all before, it does not mean very much,' one trader said.
JP Morgan currency research head Avinash Persaud said: 'I am now looking for a bumpy ride up to 150 yen [against the dollar].' He said the dollar could peak against the yen at 155 yen in September or October. 'There is no route out of the economic mess they are in today, other than by a competitive exchange rate,' he said.
Mr Persaud said that even the much called-for tax cuts that had been urged by the US and the European Commission might not be enough to ease the crisis.
'I don't think a tax cut will work, because the consumer is so blighted with pessimism that he would probably just save the money rather than spend it,' he said.