The yen plunged against the euro and the dollar today as markets weighed in comments by Japanese finance minister that hinted the massive government pension fund will buy Tokyo stocks soon.
The inverse correlation between the yen and the Nikkei share index is an interesting story. Foreign investors normally sell the yen in order to hedge their acquisition of Tokyo shares, while a well-performing Nikkei traditionally makes investors move out funds, which negatively affects the yen.
The Nikkei rose 3 percent in intraday trade on Wednesday after Finance Minister Taro Asu said that the $1.26-trillion state fund will be felt in the market starting June.
“Some of the recommendations for the pension fund are going to be implemented shortly and that story would explain the move overnight,” Ian Stannard, the London-based chief of European currency strategy at Morgan Stanley told Reuters. “But overall the risk is that we do get another setback (for the dollar) in the short-term. They’re playing down the need for more policy action and that’s going to leave the market quite disappointed and the yen well supported.”
The yen fell 0.4 and 0.3 percent to 141.46 per euro and 102.20 yen a dollar respectively today. The market is waiting for British labor market report today, which most analysts expect will indicate that real wages rose for the first time since the start of the global recession in 2008.
The report, if it turns out favorable, will send the sterling soaring against its peers. The currency has remained slightly unchanged after surging at least 10 percent in the past one year as market speculated interest rates will be hiked in 2015. The currency rose 0.2 percent to $1.6758. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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