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Commentary by Appel and Sinclair; MineWeb reports firings at World Gold Council

Section: Daily Dispatches

Japan finance chief defends intervention,
declines to increase gold reserves

http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=4781501

TOKYO, April 8 (Reuters) -- Japanese Finance Minister
Sadakazu Tanigaki said on Thursday that Japan's efforts
to hold the yen down had been useful in its fight against
deflation and that it would continue to act if currencies
strayed from fundamentals.

"Foreign exchange instability is harmful as we look for
a route out of deflation," he said in a speech to foreign
correspondents in Tokyo.

"In this context intervention has been useful so far," he
said.

He added, however, that there were limits to what
intervention in the currency market could achieve.

Japan sold 4.7026 trillion yen ($44.68 billion) in March
-- the third largest monthly volume on record -- to curb
a rise in the yen, bringing its total currency intervention
in the last 15 months to over 35 trillion yen.

A strong yen is seen as a threat to Japan's export-driven
economic recovery. It could also derail its efforts to halt
a decline in consumer prices, although some believe a
recent rise in commodity prices could limit the impact
of a currency rise.

The yen hit a four-year high of 103.40 to the dollar late
last month and was trading at a slightly weaker level of
105.60 on Thursday.

Japan is widely suspected to be scaling back its
currency intervention, controversial both at home and
abroad.

Tanigaki said Japan would continue to intervene if
currencies deviated from fundamentals, adding that
financial authorities were looking at abrupt moves and
volatility in markets.

He also said that he did not have any yen range in mind
and that he had never discussed jointly intervening with
U.S. authorities at any set currency level.

Tanigaki brushed off speculation that Japan would now
be holding off from intervention ahead of the U.S.
presidential election in November.

"There is no connection between our intervention policy
and the U.S. presidential election," he said, adding that
Japan would continue to intervene when it was necessary.

Earlier, Zembei Mizoguchi, Japan's top financial diplomat,
said the authorities were closely watching the currency
market and that stability over the medium term was
desirable.

Tanigaki said he did not think it was necessary for Japan
to boost the amount of gold it holds in its external reserves.

"I'm aware of arguments about the need to diversify our
foreign exchange reserves away from U.S. assets, but I
don't agree with calls for us to hold more gold. Some
diversification may be necessary, but I don't think Japan
needs to hold more gold," he said in his speech.

* * *

Dollar Under Pressure on Iraq Violence

By Vidya Ranganathan
Reuters
Wednesday, April 7, 2004

http://www.reuters.com/newsArticle.jhtml;jsessionid=CRPUC30K4PKF2CRBAE
KSFEY?type=businessNews&storyID=4781397&section=news

TOKYO -- The dollar came under pressure on Thursday
as escalating violence in Iraq and the fear of further militant
attacks drove investors into safe-haven currencies and
pushed up the price of gold.

The euro was at $1.2188 up nearly 2 cents from Tuesday's
lows amid reports that three days of fighting in Iraq had
claimed the lives of 35 American and allied soldiers and
at least 200 Iraqis. It was around $1.2175 in late U.S trade.

Markets feared repercussions after the U.S. military
bombed a mosque compound in the Iraqi town of Falluja
and following a recent audio tape from an al Qaeda
supporter exhorting followers to attack U.S. forces in Iraq.

"I can only see rising violence in the Middle East. That is
one of my reasons for believing that it is not a question of
if but when something will happen in the U.S. or U.K.,"
said Lee Boon Keng, economist with DBS Bank in
Singapore.

"Certainly Iraq has gone out of control."

The United States said it would keep troops in Iraq beyond
their scheduled tour of duty to combat the rising resistance
to its occupation.

Lee said that Washington would then have to commit more
funds to the Iraq operation and that coupled with the threat
of a terror attack would require the Federal Reserve to
retain its extremely easy monetary policy, despite an
economic recovery.

Meanwhile, Japan's Defense Ministry said explosions were
heard near a camp in Iraq where Japanese troops are
based, but there were no reports of injuries among the
personnel.

The yen saw light selling amid thin trade. It was quoted at
105.58/66 per dollar at 0340 GMT, off early highs near
105.20 but still above Tuesday's two-week low near
107.25.

Jun Kitazawa, assistant vice president of the forex section
at Brown Brothers Harriman in Tokyo, said he expected
the dollar to be sold if Japan suffered casualties in Iraq.

"If there was a terror attack in Japan, the yen would
obviously be sold but I think the market would react by
selling dollars if Japanese soldiers were killed in Iraq,"
he said.

Analysts attributed the yen's deviant behavior to flows at
the start of the new financial year, as Japanese investors
commit fresh funds to overseas assets.

In a clear sign investors were seeking safe bets, the
Swiss franc was trading around 1.2750 a dollar, up 2.5
percent since Tuesday.

The Australian dollar was just off a one-month high of
76.94 U.S. cents.

Gold prices rose $5 an ounce in U.S. trading, while
oil prices climbed over 3 percent on Wednesday driven
by a fall in U.S. inventories.

"There is an investing community that certainly believes
one should put this violence on the radar screen," Lee
said, adding that explained the interest in commodity
currencies and gold.

Sterling was trading at $1.8404/06, up three cents from
the week's lows, ahead of the Easter holiday. U.S. and
London markets are off on Friday.

Markets were eyeing the Bank of England's interest rate
announcement due at 1100 GMT.

A recent Reuters poll revealed a near-even split among
forecasters, with median predictions showing a 51
percent chance rates will remain steady at 4.0 percent
and a 45 percent chance of a quarter point rise to 4.25
percent.

But even those analysts who don't expect a change at
the bank's April meeting, agree that a rise in May is a
done deal.

Meanwhile, the yen barely budged on a report in an
e-mail magazine quoting Japanese Prime Minister
Junichiro Koizumi as saying he would complete his term
to September 2006 and then step down if the reforms he
had undertaken were completed.

"Politics has never been a key determinant factor in J
apan. It is just noise," Lee said.

A Reuters poll of 56 analysts this week gave a mid-range
forecast for the yen at 105 per dollar in one month, 104 in
three months and 102 in six months amid growing
evidence of a sustained recovery in Japan's economy.

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