�	FOREX NEWS Crude price drop gives yen some relief 06-04-2004 08:06
�	A drop to three-week lows for crude prices helped the Japanese yen claw back from steep losses suffered Thursday against the U.S. dollar and euro. The Japanese yen tumbled more than 1 percent earlier as Tokyo stocks unraveled on fears that rising oil prices could slow the economic recovery in Japan, one of the globe's biggest oil importers. Speculation about an interest-rate hike in China and its implications for the broader Asian region was also behind the biggest drop in Tokyo's Nikkei average in three weeks. The dollar remained up 0.7 percent against its Japanese counterpart in late U.S. trading, at 110.75 yen per dollar. The greenback was as high as 111.57 yen on Thursday. The euro rose 0.8 percent at 135.38 yen. The buck slipped 0.2 percent against Europe's shared currency in late action, at $1.2220 per euro and was earlier at $1.2253. Despite its strides against the yen, the dollar slumped against major European currencies in the wake of the European Central Bank's widely expected decision to leave interest rates unchanged. Crude price relief, with U.S. inventory data trumping OPEC's disappointing production hike, helped the dollar reclaim some ground lost earlier to its European rivals. Crude prices held above $40 in the immediate wake of the OPEC news. The July contract closed down 68 cents or around 2 percent to a three-week low of $39.28 per barrel on the New York Mercantile Exchange. The contract hit a record high above $42 earlier this week. However, a mixed batch of U.S. economic data -- which, on the whole, added to doubts for aggressive U.S. interest rate hikes in the coming months -- kept dollar investors on the defensive. The dollar fell 0.4percent against the British pound, at $1.8404 per pound. The buck was steady against its Swiss counterpart, at 1.2505 francs per dollar. Market attention remains on Friday's U.S. employment data, which could send signals about the timing and size of a possible interest rate hike. The Federal Reserve next meets June 29-30. Higher U.S. rates would make dollar-denominated assets more attractive to foreign investors. U.S. rates stand at 1 percent to the eurozone's 2 percent and the U.K.'s 4.25 percent, for example. Trichet upbeat Higher oil prices weren't enough to force the hand of European Central Bank members on Thursday. The ECB has held its main financing rate at 2 percent for a year, despite calls from some business leaders and politicians to lower rates to help spur growth in the eurozone, which lags that for the United States and Japan. ECB President Jean-Claude Trichet offered an upbeat assessment of the region's growth to the press after the meeting, helping the euro hold its dollar advance, but having little impact in moving currency markets. His citation of short-term inflation pressures, to be followed with medium-term price stability, further cut already dwindling speculation for lower eurozone interest rates this year. "These comments very much fit the recent tone coming from ECB policymakers," said Ronald Simpson, foreign exchange analyst with Web-based research firm Action Economics. Too little, too late? The near-term fate of oil prices topped other economic data for now. "Concerns that oil prices will rise even higher first hit the Nikkei, and then the yen was sold against the dollar," said Ryohei Muramatsu, senior currency trader at Commerzbank AG in Tokyo. The Nikkei stock average ended down 215 points, or 1.9 percent -- the biggest drop in three weeks. Members of the Organization of Petroleum Exporting countries agreed Thursday to bump daily production by 2 million barrels and add another 500,000 daily on Aug. 1. The announcement fell short of some market predictions for a 2.5 million barrel daily increase. Some analysts think that summer driving demand -- particularly in the United States, the leading oil importer -- will keep up the pressure on prices despite this output increase. Japanese stocks and the yen also fell on a South China Morning Post story predicting a Chinese rate hike. Higher rates in China hold implications for cooling economic growth for the broader Asian region. "This has weighed on the yen, despite renewed buying by foreign investors," said Marc Chandler, currency analyst with HSBC. An official from the People's Bank of China later said that the central bank has no current plans to adjust interest rates. "Recent [Chinese data] suggest growing price pressures, and HSBC expects a rate hike late this month or early July when it becomes evident that [Chinese] consumer prices are rising above 5 percent, near where the 1-year benchmark rates are set," Chandler added. "Allowing inflation to rise above the benchmark interest rate would arguably undermine efforts to rein in the overinvestment" as pledged by Chinese officials earlier this year, he noted. "If the price of goods rose at a faster rate than the cost of money, it would be rational to stockpile raw material and goods ... and such speculation reportedly weighed on Japanese stocks." Mixed numbers U.S. data were mixed, but did little to advance the case for an aggressive response on the part of the Fed. The Institute for Supply Management's non-manufacturing index fell to 65.2 percent from a record 68.4 percent in April, indicating a slower pace of expansion. The employment index rose to 56.3 percent from 54.5 percent. Also, U.S. April factory orders reportedly fell by a larger-than-expected 1.7 percent, but followed an upwardly revised March gain. On Monday, the ISM said employment in the manufacturing sector in May was the strongest since 1973. The Labor Department said that the average number of new weekly claims for state unemployment benefits, seasonally adjusted, rose by 4,250 to 341,000 in the four weeks ending May 29, after falling to a three-year low two weeks ago. Those still holding jobs worked more efficiently, though. Productivity in the U.S. nonfarm business sector increased at a 3.8 percent annual rate in the first quarter, revised from an earlier estimate of 3.5 percent, the government reported. Unit labor costs -- a key gauge of inflation and profit pressures -- increased at a 0.8 percent annual rate, up from the earlier estimate of 0.5 percent. Unit labor costs in the fourth quarter, however, were revised to a 1.7 percent gain from an earlier estimate of zero percent. Appropriate policy The yen's decline was reinforced when Bank of Japan Governor Toshihiko Fukui told a parliamentary committee that Japan's accommodative monetary policy remained the right course of action amid ongoing deflationary risks. Fukui said that he did not expect consumer prices to steady or turn positive anytime soon. Despite Thursday's performance, some data in Japan were yen-positive. Japan's Ministry of Finance said in a report Thursday that overseas investors bought a net 233.7 billion yen ($2.1 billion) of Japanese shares in the week ended May 28, while they sold a net 287.2 billion yen of Japanese bonds. And capital spending by Japanese companies rose 10.2 percent in the January-March period from a year ago, marking the fourth straight quarter of gains, up from a 5.1 percent rise in the October-December quarter. Japanese companies' January-March sales rose 2.4 percent from a year ago and pretax profits jumped 24.6 percent, the survey also showed. Worries about global oil prices and slower Chinese economic growth continued to hammer the Australian dollar, which shed another 1 percent against its U.S. counterpart Thursday. China has been briskly importing Australian metals and other commodities to feed its construction boom. One Aussie dollar was valued at 0.6898 U.S. cents late Thursday. The dollar down under has shed around 4.7 percent against the U.S. dollar in a month. Source: CBS Market Watch send to friend		�