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Dollar gains as Japan inflation remains low

Dollar gains as Japan inflation remains low

The dollar hit a two-month high against the yen Tuesday, coming within striking distance of its 2006 peak after a tame Japanese inflation report reduced the possibility of interest rate hikes in Japan.
With little other economic data out Tuesday, the Japanese consumer price index became a catalyst for general dollar buying that also pushed the greenback higher against the euro and other European currencies.
Tuesday afternoon, the euro stood at $1.3096 from $1.3139 late Friday, while the dollar was at 119.18 yen from 118.78 yen late Friday. The euro was at 156.06 yen from 156.02 yen late Friday. The dollar stood at 1.2228 Swiss francs from 1.2195, while the U.K. pound was at $1.9524 from $1.9589 late Friday.
Japan's core CPI showed a 0.2 percent on-year rise in November, in line with economists' forecasts. Analysts said this pares even further the already slim chance that the Bank of Japan next month might lift its ultra-low key lending rate, which stands at 0.25 percent. The low interest rate has kept many yield-seeking investors away from yen-based investments.
Investors have now found "a comfort level where they can keep buying the dollar versus yen," said Tim Mazanek, senior currency strategist at Investors Bank & Trust in Boston.
He noted the CPI data lends weight to comments by BoJ Governor Toshihiko Fukui a week ago, when he toned down his usually bullish assessment of the economy by admitting that personal spending and consumer prices remain weak.
On the back of Japan's inflation data, the dollar reached 119.23 yen, its highest level since Oct. 25. That's not far from its 2006 intraday high of 119.95 from Oct 13.
As the dollar began its ascent Tuesday, analysts at Brown Brothers Harriman noted that: "Short-term technical indicators warn this (eclipsing the 2006 high) is a reasonable threat in the coming days."
Looking to next year, however, analyst Mazanec warned investors to be careful of any surprises from the BoJ on interest rates, despite the low inflation data, because bank officials themselves have said they may act in an unexpected fashion. Buyers and sellers of yen should keep a close on "each and every (BoJ) meeting" in 2007, he said.
Besides Japan's CPI figures, government data also showed household spending for November declined 0.7 percent on year - an improvement from a 2.4 percent fall in October and slightly better than the 1.5 percent drop expected by economists. Meanwhile, Japan's jobless rate for November improved to 4.0 percent, beating the economists' forecast at 4.1 percent.
Some economists also said too much attention shouldn't be paid to the CPI data alone, and that a near-term rate hike by the BOJ isn't totally off the screen.
"As far as the overall data show improvement, the BOJ will still be able to bump up rates in the near term," said Masafumi Yamamoto, a market economist at Nikko Citigroup. "We need to see more data. There's still a chance that the BOJ will raise rates in January."
Most European markets remained closed Tuesday for holidays, which helped keep the dollar inside extremely tight ranges overnight.
The only data of note in the U.S. Tuesday were two reports on regional manufacturing activity in the areas surrounding Richmond and Dallas. Both reports were weak, but the dollar shrugged them off and continued to climb against its rivals.
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Dan Molinski is a correspondent of Dow Jones Newswires


Updated : 2021-05-10 01:56 GMT+08:00