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Euro hits 4-year highs
TOKYO, Japan (Reuters) -- The euro hit fresh four-year highs against the dollar and the yen on Wednesday as Japanese investors, disappointed by persistently low long-term interest rates in Japan, continued to seek higher yields. Separately, the Japanese currency got a slight jolt after the Bank of Japan (BOJ) unexpectedly announced it would ease its already extremely loose monetary policy. The BOJ said it would raise the reserves target -- the target amount for banks' current account deposits held at the central bank -- to 22-27 trillion yen ($184-225 billion) from 17-22 trillion yen. The central bank, citing uncertainties in the outlook for the global economy and concerns over declines in Tokyo share prices to two-decade lows, said it would provide liquidity beyond the new amount as needed to ensure stability in financial markets. The dollar edged up to around 119.60/65 yen from the pre-announcement level of 119.40/45 yen but soon settled back at 119.35/40 yen as of 0551 GMT versus 119.76/84 in late New York. Analysts said the impact of the BOJ's decision on the foreign exchange market would be minor. "The decision itself was unexpected, but the forex market is unlikely to take it as a market-moving factor unless the BOJ does something really bold such as inflation targeting or further expanding eligible collateral of its market operation,'' said Koichi Ono, economist at Daiwa Institute of Research. Ono said raising the reserve target won't affect the market as the BOJ has already been releasing a beyond-the-target amount of liquidity to the market. The BOJ left 26.2 trillion yen of liquidity in the market on Wednesday, above its policy target of 17-22 trillion yen. EURO RALLIESMeanwhile, Japanese investors kept their appetite for the euro. Before the BOJ's announcement, the yen fell as low as 133.20 per euro from around 132.68/80 in late New York on Tuesday, its highest since March 1999, dealers said. The euro was at 132.75/83 yen after meeting profit-taking pressure. Against the dollar, the euro also rose to a four-year high of $1.1140 before retreating to $1.1122/25. Demand for the euro increased as the dollar failed to maintain gains despite a surge in U.S. consumer confidence in April as shown by data released on Tuesday. "The euro remains strong, and it reaped more support because the dollar stayed under pressure. I was a bit shocked to see that the dollar slumped despite strong consumer confidence data,'' said Hideaki Furumaya, head of the interbank desk at Trust and Custody Services Bank. "It seems that the dollar could come under further downward pressure. The market now tends to react more sensitively to dollar-selling factors,'' he said. DOLLAR SENTIMENT WEAKENSSentiment for the dollar weakened after the greenback dropped sharply from the recent highs despite a monthly gauge from the U.S. Conference Board which showed that U.S. consumers found comfort in the end of the Iraq war. The private research firm's measure of consumer confidence leapt to 81.0 in April from a depressed 61.4 reading in March, the largest jump since the conclusion of the 1991 Gulf War. But wariness over possible Japanese intervention should prevent the dollar from falling too far, they said. Japan's top financial diplomat, Zembei Mizoguchi, offered a fresh verbal warning on Wednesday that Japan was ready to take action if movements in the forex market became excessive. "The market fluctuates on various factors in the short term but there is no change that U.S. economic fundamentals are relatively strong,'' he told reporters. "We will continue to monitor the markets against excessive movements over the longer term. If we see excessive movements we will take action as appropriate,'' he said. Lingering worries about the spread of Severe Acute Respiratory Syndrome (SARS) in Asia and the nuclear crisis in North Korea are expected to keep the yen under pressure. Some focus was on BOJ intervention data due out later in the day, but many analysts said it was unlikely that Japan intervened in April.
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