Ted Butler: Where''s your silver?

Section:

By Taizo Hirose
Bloomberg News Service
Tuesday, February 22, 2005

http://quote.bloomberg.com/apps/news?
pid=10000006&sid=aWcrfg7PMTtQ&refer=home

TOKYO -- The dollar fell almost a cent against the euro and dropped
versus the yen on a report that South Korea's central bank will
diversify its currency reserves.

The central bank, which has $200 billion in reserves,
will "diversify the currencies in which it invests," Reuters said
yesterday, citing a Bank of Korea spokesman in a parliamentary
report. Byun Jai Yung, head of the bank's planning department, told
Bloomberg in a telephone interview that he can't comment.

"People are taking the Bank of Korea story a bit more seriously and
there's some talk other central banks are backing away as well,"
said David Mozina, a currency strategist at ABN Amro Holding NV in
Sydney. The dollar's decline triggered some automatic orders to sell
the currency, he said.

The dollar fell against the euro to $1.3148 at 1:42 p.m. in Tokyo
from $1.3068 late yesterday in Toronto, according to EBS, an
electronic foreign-exchange dealing system. The dollar fell to
104.91 yen from 105.54. U.S. markets were closed yesterday for a
national holiday.

"Korea is one the largest holders of foreign exchange reserves in
the world, which means they will be able to buy more non-dollar
currencies," said Greg Gibbs, a Sydney-based senior currency
strategist at RBC Capital Markets. South Korea has the world's
fourth-largest reserves behind Japan, China, and Taiwan, according
to data compiled by Bloomberg.

The yen's gain accelerated as it breached 105.40 per dollar and
137.65 per euro, where pre-set orders to buy the Japanese currency
were clustered, said Tsutomu Soma, a currency and derivatives trader
in Tokyo at Okasan Securities Co.

The dollar's slide against the euro quickened after $1.31, where
investors placed similar orders, said Jake Moore, a strategist at
Barclays Capital in Tokyo.

"The sheer size of Korea's reserves makes it unignorable," said
Tetsu Aikawa, currency sales manager in Tokyo at UFJ Bank Ltd., a
unit of Japan's fourth-largest lender. "That revives the memory in
people's minds how badly the dollar was sold when Russia said it was
diversifying." The U.S. currency may weaken to $1.32 per euro today,
he said.

The dollar fell to a then record against the euro on Nov. 23 after
Russia's central bank said it may increase the amount of euros in
its reserves. The dollar fell as much as half a percent against the
euro on Jan. 24, after a survey sponsored by Royal Bank of Scotland
Plc showed central banks boosted euro holdings.

Almost 70 percent of the 56 central banks surveyed said they
increased exposure to the 12-nation currency, according to the
survey conducted by Central Banking Publications Ltd., a London-
based publisher, between September and December 2004. Fifty-two
percent said they reduced exposure to the dollar.

The yen's advance began earlier today on speculation Japan's economy
will recover from its fourth recession since 1991. The U.S. currency
also weakened versus the euro.

Traders may renew bets on the yen after it retreated 3 percent from
a five-year high of 101.69 on Jan. 17, said Sabrina Jacobs, a
currency strategist at Dresdner Kleinwort Wasserstein. Japan's trade
surplus widened for a second month in January, a government report
tomorrow may show.

"Investors are increasingly realizing that the second-half recession
in 2004 was the low point in Japan and that it's most likely getting
better," said Singapore-based Jacobs. "That's helping the yen."

Japan's surplus probably grew to 508.5 billion yen ($4.84 billion)
from a year earlier, according to the median forecast of 24
economists surveyed by Bloomberg. The Ministry of Finance is
scheduled to release the report at 8:50 a.m. tomorrow in Tokyo.

"We're looking for some signs of improvement in Japanese exports,"
said Tomoko Fujii, a Tokyo-based foreign-exchange strategist at
Citigroup Inc. A rising surplus "will place upward pressure on the
yen."

Finance Minister Sadakazu Tanigaki said on Feb. 20 Japan's economy
will "improve in the latter half of this year." Growth shrank at an
annualized pace of 0.5 percent in the three months ended Dec. 31, a
third straight quarterly contraction.

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