Japanese yen rises broadly on risk aversion due to the selloff in global stock markets


The Japanese yen rose broadly against major currencies after Citigroup Inc. said it might write down subprime-related assets by as much as $11 billion in the past month, a decline that may wipe out half of the company's profit so far this year. Citigroup Chairman and Chief Executive Officer Charles Prince resigned after the announcement.

Fed Governor Frederic Mishkin said on Monday that the central bank acted aggressively with the two rate cuts to prevent financial market turbulence from damaging the U.S. economy, but would be ready to act just as quickly if it overdid its policy medicine. Interest-rate futures showed a 65% chance of a quarter point rate cut at the December meeting. 

The single currency extended last week’s upmove and rose to a record high of 1.4530 in Australian morning before retreating to 1.4444 in European session due to cross selling in euro especially versus the Japanese yen. Euro tumbled against the yen from 166.63 to 164.95. Aussie and sterling also weakened against the Japanese unit from 105.91 to 14.58 and from 239.75 to 237.19 respectively due to the selloff in global stock markets. Dow Jones fell as much as 150 points before recovering some of the losses later in the day and closed down 52 points.

Cable failed to re-test its 26-year high of 2.0897 made on last Friday and retreated after the release of weak U.K. economic data, including service PMI, industrial and manufacturing production, which all came in below market expectations. The U.K. service PMI in October fell to 53.1 from 56.7; industrial and manufacturing production dropped by 0.4% and 0.6% in September respectively, well below the expectation of a rise of 0.2% and 0.0%. The poor data showed there were signs of weakness in the U.K. economy and the relative chance of a rate cut by the BOE will be higher somewhat compared to last week. The British pound extended intra-day weakness to 2.0782 as U.S. ISM non-manufacturing rose to 55.8 in October, well above the forecast of 54.0 and the reading of 54.8 in September.

Tuesday will see the release of Japan’s leading indicators, eurozone services PMI, PPI and retail sales and Canada’s building permits and Ivey PMI. Investors are focusing on the speech delivered by Chairman of the Federal Reserve, Ben Bernanke at 18:40GMT.