Yen Strengthens against Greenback Prior to Jobs and Factory Data

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Tradervox.com (Dublin) - The Japanese currency advanced against the greenback for the first time in five days as speculation the Federal Reserve will reduce stimulus in coming months spurred demand for the yen as safe haven. The yen rose versus all its 16 major peers as the Bank of Japan left policy unchanged at a policy meeting today. The dollar rose for a fourth day versus the euro before a U.S. report forecast to show jobless claims declined, adding to signs of growth in the world’s biggest economy. The Fed’s Open Market Committee yesterday kept monthly bond purchases at $85 billion. The euro fell after data showed inflation in the region slowed.

According to Daragh Maher, a London-based currency strategist at HSBC Holdings Plc, the FOMC statement has challenged the market belief that the Fed would wait until 2014 before tapering. He noted that this is bad for the risk-on mood that had prevailed and has lent consequent support to the yen.

The yen rose 0.3 percent to 98.22 per dollar at 10:07 a.m. London time after depreciating to 98.68 yesterday, the weakest since Oct. 17. Japan’s currency gained 0.8 percent to 134.28 against the euro. The euro dropped 0.5 percent to $1.3672.

The FOMC said it saw “improvement in economic activity and labor market conditions.” Economists at Citigroup Inc. and Barclays Plc said the statement opens the possibility of reduced bond purchases as soon as December. The odds of a taper in January rose to 45 percent, from 25 percent before the decision, according to Citigroup. Economists surveyed on Oct. 17-18 had predicted the Fed would begin tapering in March.

“The people who were expecting a more dovish statement from the Fed are unwinding their positions,” said Yuki Sakasai, a foreign-exchange strategist in New York at Barclays Plc. “The dollar was bought back, but whether it can sustain those gains will depend on the economic data.”

U.S. initial jobless claims dropped to 338,000 from 350,000 the previous week, according to a Bloomberg survey before the Labor Department data. The Institute for Supply Management will say tomorrow its manufacturing index was at 55 in October from 56.2 last month, which was the highest since April 2011, a separate survey showed. Readings above 50 indicate growth.

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