jueves, 17 de marzo de 2011

Wall Street Gains; Yen Strengthens

With Japan’s nuclear crisis showing no sign of ending, the yen strengthened against the dollar on Thursday, compounding that country’s economic worries and raising expectations that the central bank will soon have to intervene.  Stocks in Asia were generally down but shares were higher in Europe and on Wall Street. The yen has been creeping upward since the devastating earthquake and tsunami that battered northeastern Japan last Friday. It climbed sharply to 76.53 yen to the dollar in New York as a nuclear official in the United States warned that the situation at the Fukushima Daiichi Nuclear Power Station was more serious than Tokyo has acknowledged.

The yen eased off those levels to hover around 79 yen to the dollar. But even at that level, the currency was about 5 percent stronger than where it was shortly before the quake. Finance ministers and central bankers from the Group of 7 countries were set to hold a telephone conference late Thursday New York time to discuss the economic situation in Japan, according to the Japanese finance minister, Yoshihiko Noda.

That, according to some analysts, has helped calm investors and helped the markets recover somewhat from sharp declines this week. On Wall Street, all three major indexes are down at least 3.5 percent for the week, with the Standard & Poor’s 500-stock index and the Nasdaq both negative for the year, with the Dow close behind.

In economic news, first-time claims for unemployment benefits fell to 385,000 last week, which was slightly more than expected. And consumer prices edged higher in February. The Consumer Price Index rose 0.5 percent last month, also more than forecast. Core prices, which exclude food and fuel costs, rose 0.2 percent.

In early afternoon trading, the Dow Jones industrial average was 144.98 points, or 1.25 percent, higher. The S.& P. 500 added 17.59 points, or 1.4 percent, and the Nasdaq rose 34.59 points, or 1.32 percent.

Prices fell for benchmark Treasury bonds as the yields rose to 3.27 percent from 3.19 percent late Wednesday. Oil prices rose back above $100 a barrel as turmoil continued in North Africa and the Middle East.

Shares were also higher in Europe after the declines in recent sessions. The Euro Stoxx 50, a benchmark of blue chips, added 2.34 percent and the DAX gained 2.18 percent in Frankfurt. In London, the FTSE rose 1.68 percent, and the CAC 40 in Paris added 2.2 percent.

The Japanese stock markets fell Thursday, though the Nikkei 225 index recouped some of its steep morning losses to end down a relatively modest 1.4 percent at 8,962.67 points. The broader Topix even briefly strayed into positive territory before closing 0.8 percent lower. Elsewhere in the region, the Hang Seng index in Hong Kong dropped 1.8 percent.

During the G-7 call, officials are expected to discuss measures to support Japan, improve liquidity if needed and calm financial markets. But given the level of Japan’s foreign exchange reserves and the wealth of the country, it is not envisaged at this stage that its partners would need to provide direct financial assistance.

Central bankers have plenty of options to choose from if the situation in Japan and global markets deteriorate. One initial plan could center around opening lines of credit among major central banks. Similar facilities were opened by some central banks after the terrorist attacks in the United States in 2001 and the financial market contagion in 2008 and 2009.

In this case, the Bank of Japan would provide a steady stream of yen to the Federal Reserve and the European Central Bank, ensuring that private banks would have easy access to the Japanese currency. Demand for yen has been rising in recent days, as Japanese insurers and other financial firms sell their most liquid assets like stocks and commodities to generate cash to use at home for rebuilding efforts.

But Kaoru Yosano, Japan’s economy minister, told Reuters that although the country welcomed the moral support from the Group of 7, the Japanese markets had not become destabilized enough to warrant joint currency intervention or government purchases of shares, Reuters reported.

Still, the yen’s sharp climb and the G-7 teleconference reinforced expectations that the Japanese central bank, which has been injecting massive amounts of liquidity into the financial system all week, will soon take the step of intervening outright in the foreign exchange markets in a bid to weaken the yen. Given the economic turmoil generated by the quake and nuclear crisis that has followed it, said Thomas Harr, a currency strategist at Standard Chartered in Singapore, “it’s very likely that Japan will get international backing” for any such move, which could come over the next 24 hours.

The Bank of Japan last intervened in September, when it sold 2 trillion yen ($25.5 billion) to slow the currency’s appreciation. That was the first such move since 2004.

However, Mr. Harr added, it would be very hard to stem the yen’s rapid rise. “The yen rose about 20 percent after the Kobe earthquake in 1995,” he said.

The yen tends to rise, rather than fall, at times of financial uncertainty, partly because it is seen as a relatively safe asset. The currency’s trend has been accentuated by expectations that Japanese companies, insurers and investors will need to repatriate large amounts of cash from overseas to help pay for rebuilding costs.

Japanese officials on Thursday said they believed that market speculation, rather than actual fund flows, were behind the yen’s ascent.

Mr. Yosano, the Japanese economy minister, said there was no evidence as yet that Japanese life and casualty insurers were selling dollar-denominated assets. “They have ample cash, deposits and other liquid assets,” Bloomberg News quoted him as saying.

Whatever the exact drivers, the currency’s strength is highly unwelcome to an economy that is already reeling from the quake’s massive damage and the disruptive power shortfalls that have followed.

A stronger yen means Japanese-made goods are more expensive for consumers elsewhere, creating a major headache for Japanese exporters.

“The maximum moment of panic was on Tuesday,” said Jesse Lentchner, who heads the equities broker BTIG in Asia, referring to a sell-off that dragged the Nikkei down 10.6 percent. “But now people are looking at the situation more rationally than they were earlier this week.”