10 MAY 2013: YEN BREAKS THROUGH 100

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After flirting with the 100 yen to a dollar mark for weeks USD finally smashed through this psychological important hurdle indicating further weakness in the Japanese yen. USD/JPY traded as low as 101.20 early Friday, down two percent from Thursday’s 98,75, the lowest level seen in four and a half years. The record low represents a victory for Prime Minister Shinzo Abe’s “Abenomics” and his deliberate efforts to weaken the yen and strengthen economic growth through monetary easing.

In an effort to counter the weaker yen and boost its own competitiveness both Australia and South Korea have during this week cut their interest rates, sparking what seems as a currency war among Asian trading partners. Both countries cited their strong currencies as one of the reasons for their 0,5% cuts. A South Korean finance ministry official said Friday that Seoul was worried about the pace of the yen’s decline. The yen has depreciated 25% since the decline started in October/November.

Japan economy minister Akira Amari reiterated as Japan did during the recent G-20 meeting, that Tokyo has no intention to manipulate currency levels. Analysts expect a further fall in yen as dollar/yen finally have gotten over the psychological hurdle of 100. A continued downward pressure on the currency was underscored by data published on Friday showing that Japanese investors finally have reversed their relentless selling of foreign bonds. Japanese investors have over the last 12 weeks been net sellers of foreign bonds.

The Nikkei index soared to a four and half year high, up 6,5% only this week. The US dollar was buoyed by new strong jobless claims. The last weekly report published yesterday confirm the stronger than expected monthly nonfarm payrolls for April when jobless claims fell to its lowest level in five years. Signs of a steady US recovery has already could fuel speculation that the Federal Reserve (FED) might scale back its aggressive quantitative easing.

After reaching 99,95 in early April the USD has stalled one month against the yen. EURO/JPY simultaneously rose to 131,91, its highest since January 2010. There is no major changes in oil prices, copper and other commodities. Gold fell back from its high on USD 1474 and has recovered to 1462 in early Asian trading.

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