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Yen weakens after Japan PM resignation

Posted by Pradip Koti on Jun 02, 2010 | Leave a Comment
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Broadly after Japan’s Prime Minister Yukio Hatoyama said he would resign, the Yen weakened, which fueled investor expectations that political turmoil would make the economy more dependent on the Bank of Japan’s loose monetary policy. The resignation of PM was proclaimed by him and he would take responsibility for his reversal on a decision to relocate a U.S. Marine base on Japan’s southern island of Okinawa, and also political funding scandals,Hatoyama said before Democratic Party of Japan lawmakers in a television appearance on Wednesday.

Against 15 of 16 major counterparts, Japan’s currency fell. At 12:10 p.m. in Tokyo, the Nikkei 225 Stock Average increased 0.4 percent to 9,747.54, reversing from a decline of 1.1 percent before Hatoyama spoke. The MSCI Asia Pacific Index was little changed and Standard & Poor’s 500 futures rose 0.5 percent.

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As political instability damps the appeal of the currency as a refuge from volatility, the yen is harmed by Hatoyama’s resignation. The world’s largest carmaker Toyota Motor Corp. advanced 0.9 percent as the yen’s decline boosted the earnings outlook for exporters. In the first quarter, overseas shipments accounted for more than half of Japan’s economic growth.

A strategist at Tokyo-based Sumitomo Trust & Banking Co. Ayako Sera said, “Japanese stocks are rising today because the yen is being sold-off,” “That’s just the first reaction but on a long-term view, there is still a sense of uncertainty. It’s hard to say that Japan’s economy will do better on this change.”

Alliance Split

The chief economist in Tokyo at Societe Generale Asset Management (Japan) Inc. Akio Yoshino said, “As a broad rule, when the head of a country passes away or resigns, you sell the currency of that nation”.

The political woes of Hatoyama grew as the Social Democratic Party left the ruling alliance last week after its leader was fired by him from the Cabinet for refusing to endorse an accord on the relocation of the Futenma Marine Air Base in Okinawa.

Last week an agreement was reached by government with the U.S. to move the facility to a less populated part of the island, breaking a campaign pledge to transfer it elsewhere. Because of its majority in the lower chamber, the government will retain power regardless of the result of upper house elections this summer.

Kiwi, Aussie

The key interest of Bank of Canada was raised from a record low yesterday, the first Group of Seven central bank to do so since July 2008. The New Zealand dollar rose 0.6 percent to 61.76 yen and Australia’s added 0.7 percent to 76.14 yen.

The head of currency trading at ANZ National Bank Ltd. in Wellington, Tony Allen said, “Because the Bank of Canada raised rates last night it opens the door for New Zealand to raise rates next week,” “There are more reasons to buy the kiwi than sell it at the moment, but the big driver will be what happens globally.”

After the government said the economy prolonged 0.5 percent in the first quarter and revised up the pace of growth for the final three months of 2009, Australia’s dollar rose.

An upturn of the equity market, a key gauge for risk sentiment, triggered a knee-jerk buy-back of the euro, which is also an important proxy for risk sentiment,” said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest banking group.

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