Yen Weakens despite Falling Stocks and Weak Data

12-22-2008 07:00

Japanese yen fell today even after economic data showed that recession in Europe and the U.S. may deepen. Investors sold the yen in favor of higher-yielding currencies as the recent efforts from governments and central banks around the world calmed concerns and reduced risks in financial markets. The yen was also under pressure on speculations about intervention by the Bank of Japan to halt further appreciation of its currency.

U.S. Home Sales Falls

Sales of new homes declined 2.9 percent in November, Commerce Department announced today. Purchases fell to 407,000 annually which was less than 415,000 that analysts expected. Index of new home sales, which make less than one tenth of total sales, tends to be a leading indicator of economic activity since it points to future contracts and gives a picture of confidence among buyers in coming months.

Existing home sales also fell 8.6 percent at the same period, a report from the National Association of Realtors showed today. The median resale price declined as much as 13 percent. Falling home prices could erode consumers' confidence as it reduces the wealth and purchasing power of the home owners.

U.K. GDP Revised Lower

Final revision of gross domestic product in the U.K. came less than forecasts. Third quarter GDP was revised to minus 0.6 percent, lower than 0.5 percent that was previously announced. Another report from the British Bankers Association showed that the number of home loans declined to 17,773 last month; the lowest level in 17 years.

Economic data point to a deeper recession in the U.K. Reports last week showed that jobless claims rose by 75,700 and unemployment rate reached 6.0 percent. The Bank of England voted unanimously to cut the bank rate in its latest meeting and analysts expect to see another rate cut as soon as January. The labor government has already announced a sizable budget deficit for the next year in forms of spending plans and tax cuts, all to revive demand and economic growth.

Japanese Intervention

Yen was also weaker as the possibility of a currency intervention by the Bank of Japan raised the risk of holding the yen. Earlier data this week showed that Japan's exports plunged 26.7 percent last month from a year before. Japanese exporters blame the recent appreciation of the yen, especially against the dollar and euro, for falling overseas demand for their products. The BOJ cut its target rate last week to 0.1 percent. With near-zero interest rate, speculations rise about using other options, such as direct intervention and selling yen by the BOJ, to halt further appreciation of yen.