Roach''s private forecast scares Boston money guys, who root for inflation


By Taizo Hirose
Bloomberg News Service
Tuesday, November 23, 2004

SYDNEY -- The yen had its biggest decline in two
weeks in Asia, stalling a rally that sent it to a
four-year high against the dollar on Nov. 19, on
concern Japan will sell its currency to stem the

Demand for the dollar also rose after a technical
indicator suggested the currency's decline last week
to a record versus the euro was excessive. Japan
will monitor foreign-exchange markets "very closely,"
Vice Finance Minister Koichi Hosokawa said
yesterday in Tokyo.

"We're in the zone where it seems every push higher
in the yen could trigger action from Japan," said
Tetsu Aikawa, a currency salesman for institutional
customers at UFJ Bank Ltd., a unit of Japan's
fourth-largest lender. "It isn't easy to keep buying
the yen."

Against the dollar, the yen traded at 103.44 as of
12:54 p.m. in Tokyo from 103.15 late in New York
yesterday, according to EBS, an electronic currency
dealing system. The yen may weaken to 103.80 this
week, Aikawa said. It traded at 102.70 on Nov. 19,
the strongest in more than four years.

The dollar gained to $1.3000 per euro from $1.3049.
It fell to the record of $1.3074 on Nov. 18. The euro's
14-day relative strength index against the dollar
yesterday rose to 69.10, close to the level of 70 that
signals a currency may change direction. The index
shows how rapidly prices have risen or fallen.

"Given the magnitude of the dollar's recent decline,
any reversal would be natural," said Tsutomu Soma,
a currency and derivatives trader in Tokyo at Okasan
Securities Co. "Technically, there's no doubt that the
dollar's oversold." The dollar may gain to $1.3000
today, he said.

The dollar dropped yesterday against the euro on
speculation President George W. Bush will fail to
show any immediate solution to narrow the U.S.
budget deficit, being blamed for the dollar's slide.

Bush, facing questions about the falling value of the
U.S. currency during the Asia Pacific Economic
Cooperation forum in Santiago, said on Nov. 21 he
backed a "strong dollar" and pledged work to cut the
U.S. government budget deficit. Federal Reserve
Chairman Alan Greenspan on Nov. 19 said foreign
investors may tire of financing the U.S.
current-account deficit.

The U.S. rejected Germany's efforts to insert a
sentence criticizing "volatile" currency moves into
a joint statement after a meeting of the Group of 20
industrial and emerging economies, two German
government officials said on Nov. 21.

"The prospect for a stabilization in the current
account deficits and budget deficits at these levels
is unlikely," said Robert Rennie, a currency strategist
in Sydney at Westpac Banking Corp. "Risks are that
we see more bad news for the U.S. dollar before we
see any good news."

The Nikkei 225 Stock Average fell 2.1 percent yesterday,
the biggest drop in more than three months, as the yen's
rally on Nov. 19 to the highest since March 31, 2000,
raised concern that a stronger currency may slow growth.
The economy expanded at its slowest in more than a
year in the third quarter.

The currency's strength will hurt exporters, Hiroshi Okuda,
chairman of Toyota Motor Corp. and head of Japan's
biggest business lobby, said yesterday in Tokyo.

Trading in the foreign-exchange market may be less than
usual this week because of holidays in Japan today and
in the U.S. on Nov. 25. Japan sold its currency on Jan. 2
during a holiday, according to Ministry of Finance data.

The difference in the number of wagers by hedge funds
and other large speculators for an advance in the yen
compared with those for a drop -- so-called net longs --
was 44,596 on Nov. 16, from 39,093 a week earlier,
according to Commodity Futures Trading Commission

The Bank of Japan at the behest of the Ministry of
Finance sold a record 32.9 trillion yen ($318.4 billion)
in the fiscal year ended March 31 and has refrained from
action since then.

"I would suggest squaring up on short-dollar positions
in the event that the BOJ/MOF decide they want to
intervene," said Michael Woolfolk, a New York-based
currency strategist at Bank of New York. Otherwise,
"you're going to have to be watching the monitors
closely" during the holidays.

Short selling is borrowing and selling an asset in
anticipation of making a profit by buying it back after
its price has fallen.

"We will act decisively if the currency market moves
rapidly," Hosokawa said at a press conference in
Tokyo yesterday. The currency market should move in
a "stable manner," reflecting fundamentals of economies,
he said.


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