16 January 2013: Nikkei falls as Yen inches up

Asian stocks were weaker this morning as the Japanese Nikkei erased earlier gains. The Yen rose for a second day in row on warnings on excessive weakness from its Finance Minister expressing worries for overheating and a, too, quick fall in the currency. USD/JPY trades at 88,33 yen a dollar after hitting a a two-and-a-half-year peak on 89,67 on Monday. The Euro also slipped after a top EU official complained about its recent gains.

Many market players see the latest rebound in the Yen as a small correction in a long-term downtrend which started at the end of last year on expectations that the Bank of Japan (BOJ) will be forced to take bold action to reflate a sluggish economy. The New Prime Minister Shinzo Abe has in January taken active steps to encourage growth and called for BOJ to set a two percent inflation target. BOJ is expected to follow this call up at their meeting on January 21-22.

The dollar fell as low as 88.06 yen breaking through a technical support level on 88,20. The Euro slipped 0,6 percent to 117,28 yen as the Euro also lost momentum against the dollar. Euro/USD trade below 1.33 after the chairman of euro zone finance ministers, Jean-Claude Juncker had warned against “dangerously high” Euro. Euro/USD reached a peak on 1.3404 on Monday.

Junker’s comments were by investors seen as an excuse to cash in on recent gains. His statement did not necessarily represent a reversal in upward trend seeing the Euro rallying 3 percent in the past few sessions. With traders concentrating on the yen there has been small changes in other currencies. Swiss Franc lost ground against the Euro on Wednesday. The Euro hit a 13 month high of 1,2413 francs on Tuesday, but has fallen back to 1.2365 this morning. The Scandinavian currencies have lost one percent against the dollar over the last 24 hours.

Equity markets in the US were flat yesterday on uncertainty on companies’ fourth quarter earnings. Retail figures for December came in much stronger than expected indicating consumer optimism that augurs well for quarterly earnings. Manufacturing data for the state of New York for December fell back underlying the somewhat mixed picture of where the US economy is heading. These contradictions were also stressed in FED head Ben Bernanke’s speech on Monday being used as an argument for continued monetary easing.

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