Japan stocks end on G-7 currency intervention pledge

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Japan stocks end on G-7 currency intervention pledge

Stocks in disaster-stricken Japan capped a turbulent week with solid gains Friday after finance ministers from the Group of Seven nations announced a coordinated intervention in the currency market to prevent the yen from rising further.
The Nikkei 225 index, the most prominent measure of stocks traded in Tokyo, climbed 244 points, or 2.7%. For the week, the index was down 10.2%, but has rebounded 7% since suffering the third-worst drubbing in its history on Tuesday.
Officials of the United States, the United Kingdom, Canada and the European Central Bank said in a statement that they will join with Japan in "concerted intervention in exchange markets."
"As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability," the ministers said in the statement. "We will monitor exchange markets closely and will cooperate as appropriate."
The yen, considered a safe haven by global investors, has been driven higher in recent days by uncertainty and speculation that more cash will flow into Japan as it rebuilds.
But a strong yen is a serious threat to Japan's export-driven economy, since it undermines profits for Japanese companies that do business overseas.
The Japanese stock market has been roiled by uncertainty this week, with investors struggling to comprehend the implications of last week's devastating earthquake and tsunami, and the resulting crisis at a crippled nuclear power plant.
The Nikkei fell 1.4% in Thursday's session, giving back some of Wednesday's gains. On Tuesday, the index plunged 10.6%, marking the third worst one-day plunge in the Nikkei's history.
After a massive earthquake and tsunami devastated the northern part of the country, workers at Japan's Fukushima Daiichi nuclear power plant have been struggling to cool damaged reactors.
The Tokyo Electric Power Company (Symbol : TKECF) said early Friday that water dumped by helicopters, fire trucks and police water cannons was "somewhat effective" in cooling the crippled reactors, housed in a facility located about 138 miles north of Tokyo.
In the currency market, the yen stabilized against the U.S. dollar Thursday after surging to an all-time high on Wednesday. The retreat came amid speculation that the Bank of Japan will soon intervene in the market to curb the yen's rise by selling the currency.
For an economy facing a tough road ahead, a weaker currency would be a good thing. A stronger home currency would make Japanese goods more expensive in overseas markets, to the detriment of Japan's manufacturing industry.
Under normal circumstances, intervention would be frowned on by other central bankers.
Other Asian markets joined Japan in ending higher Friday. The Hang Seng was up 0.1%, while the Shanghai Composite advanced 0.3%. European stocks opened higher.
In the United States, stocks closed broadly higher Thursday, after two days of heavy losses on Wall Street, as investors cheered an upbeat outlook from economic bellwether FedEx (Symbol : FDX). U.S. futures pointed to a higher open Friday.
The Tokyo Stock Exchange resumes trading Tuesday, after taking Monday off for the vernal equinox holiday.

Foreign exchange rates: GBP slumps vs EUR PDF

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 Foreign exchange rates: GBP slumps vs EUR

The Pound Euro exchange rate is 0.189% lower day on day with 1 GBP = 1.1550 EUR.
The Pound Dollar exchange rate is 0.380% higher on the day with 1 GBP = 1.6130 USD.
The Pound Australian Dollar exchange rate is 1.087% higher with 1 GBP = 1.6012 AUD.
"The British Pound slumped for a third straight day against the Euro, dropping to a low of 1.1505 this morning, as money markets continue to scale back expectations that the Bank of England will raise interest rates," says Adam Solomon, a foreign exchange rate analyst at Tor Fx.

The Euro also made strong gains against the majority of the 16 most actively traded currencies, as European Union finance ministers announced a deal to effectively bring a halt to the sovereign debt crisis.

With Europe poised to raise their benchmark lending rate in April, some peripheral economies are still struggling with recession, but news of the revamped bailout plan will be a source of encouragement to investors.

The Pound was 0.3% against the Euro by midday in London and the UK currency may come under further selling pressure after pushing through support at 1.1550.

Japanese yen backs off historic highs after G-7 pledges currency intervention to curb

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Japanese yen backs off historic highs after G-7 pledges currency intervention to curb

TOKYO — The yen backed away from historic highs and Japanese shares rose Friday after the Group of Seven major industrialized nations promised coordinated intervention in currency markets to support Japan's recovery from a catastrophic earthquake and tsunami.
The G-7 pledge came a day after the yen soared to an all-time high against the dollar, possibly threatening Japan's exports and hampering its economic recovery from the Mar. 11 quake that triggered an unfolding nuclear crisis.
The dollar jumped to 81.26 yen from 79.45 immediately after the announcement and was trading at 81.66 mid-afternoon. It was unclear whether that was due to government intervention or to traders reacting to the news. The dollar briefly slumped to 76.53 yen on Thursday — an all-time low for the U.S currency and a record high for the yen.
The benchmark Nikkei 225 stock average closed up 2.7 percent Friday following a turbulent week of trading amid the escalating nuclear crisis. The index is down nearly 12 percent since March 10, the day before the quake.
The G-7 statement sent a "strong message" to reassure jittery markets, said Masafumi Yamamoto, chief foreign exchange strategist at Barclays Capital Japan. It would be the first time since late 2000 that the governments have jointly intervened in currency markets.
Japan's Finance Minister Yoshihiko Noda said the planned intervention was meant to calm "volatility" and G-7 governments had no target exchange rate.
"We are not aiming for a specific level," the minister told reporters.
The G-7 statement adds to a flurry of moves by Japan to calm roiled financial markets following the 9.0-magnitude quake and tsunami in northeastern Japan, which killed has thousands of people, left hundreds of thousands homeless and damaged reactors at a nuclear power plant.
Japan's central bank welcomed the G-7 initiative. The bank has tried to calm money markets by injected 38 trillion yen ($470 billion) in emergency cash this week on top its regular funding activities.
At the crippled Fukushima Dai-ichi nuclear power plant, military fire trucks sprayed the troubled reactors for a second day Friday, with tons of water arcing over the facility in desperate attempts to prevent fuel from overheating and spewing dangerous levels of radiation. The U.N. atomic energy chief called the disaster a race against the clock that demands global cooperation.
Quake damage and power cuts have forced Toyota Motor Corp., the world's biggest automaker, and other major manufacturers to suspend production, sending ripples through the global economy.
Analysts expect automakers to recover in coming weeks though most were still working on lining up alternative parts suppliers Friday to replace those damaged in Japan's northeast. Nissan Motor Co. and Mitsubishi Motors Corp. restarted some facilities this week using parts already in stock but that will continue only as long as inventory lasts.
"It's all guesswork," Koji Endo, analyst with Advanced Research Japan, said of the potential damage.
Japan's Mizuho Bank said technical trouble that has hit its automatic teller machines is expected to have affected more than 1 million transactions worth 700 billion yen ($8.9 billion) by the end of Friday. The bank, Japan's third biggest, is investigating but has yet to find a cause, said spokeswoman Masako Shiono.
In a joint statement issued following emergency discussions, the G-7 officials said that the United States, Britain, Canada and the European Central Bank will join with Japan in a "concerted intervention" in currency markets Friday.
"We express our solidarity with the Japanese people in these difficult times," the statement said.
Noda, the finance minister, expressed Japan's gratitude.
The yen's rise was driven by expectations that Japanese companies would sell dollar-denominated assets and buy yen to pay for quake recovery. Traders said there was no sign that happened, which meant government intervention might be able to discourage further speculation.
Barclays Capital's Yamamoto said the G-7 pledge of cooperation was a striking contrast to last year's talk of possible "currency wars" and governments trying to weaken their currencies to shore up exports amid the global crisis.
"It's completely different from last year," he said. "People were talking about currency wars and competitive devaluation. So it's a total change. In that sense, it was very significant that speculative yen appreciation can be attacked by coordinated action."
Goldman Sachs estimated Japan's disaster losses could reach $200 billion, the equivalent of more than 3 percent of Japan's annual gross domestic product.
It is unclear how much a change in exchange rates might help Japanese exporters, which also are struggling with power shortages that have forced major auto manufacturers and others to suspend production.
"Many would currently be unable to benefit from a weaker yen anyway," Capital Economics said in a report. "A stronger currency will at least make imports cheaper and therefore minimize the additional costs of meeting any shortfall in necessities following the disruption to domestic supplies."

Trading The Offshore Yuan Gravy Train

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Trading The Offshore Yuan Gravy Train
By Philippe Espinasse

The large-scale trading simulation this week of offshore yuan-denominated securities in Hong Kong lays the groundwork for a market that could soak up the mountains of Chinese currency that cannot be repatriated easily to the mainland. It also looks very much like a dress rehearsal for Cheung Kong (Holdings) Ltd.’s long-awaited IPO and listing of a $1 billion equivalent, yuan-denominated REIT in Hong Kong.On March 19 and 20, the Stock Exchange of Hong Kong (HKEx) is coordinating a test of the new trading processes, enlisting some 300 brokers — about 60% of the total in Hong Kong. This exercise follows the October 2010 listing of a 10-year, 1.2 billion yuan ($182 million) bond in Hong Kong by the Asian Development Bank — the longest maturity issued so far — and involves stocks, debt securities, derivatives, ETFs and even mutual funds.
There’s little glamour or frenzy involved. It’s very much a back-office affair, as participants test order management and routing mechanisms, trading quotes and information systems, as well as credit and risk platforms.
Some background. Yuan deposits in Hong Kong continue to grow exponentially. In January, they topped 370 billion yuan ($56.4 billion), according to the Hong Kong Monetary Authority. That compares to only 64 billion yuan ($9.75 billion) a year earlier — an increase due to Beijing’s promotion of the yuan as payment for trade, as well as to its 3% to 5% annual appreciation against the U.S. dollar.
Some of that offshore money has been invested in “dim sum” bonds — Hong Kong-listed, yuan-denominated debt securities. But their total issuance amounted to only $5.5 billion in 2010 and even the more than $10 billion predicted for this year is modest. Most of the yuan held in Hong Kong sits instead in deposit accounts, slowly playing the foreign exchange appreciation game. With few other places for this money to go, Beijing increasingly worries that funds repatriated to the mainland may fuel an already high 4.9% annual inflation.
Conducting CNY-denominated IPOs in Hong Kong is a sensible way to address the build-up of that currency outside the mainland, but there are concerns about liquidity. Market operators are keen to avoid a remake of China’s ill-fated B share market, the U.S.- and H.K.-dollar-denominated Chinese equities listed in Shanghai and Shenzhen that remain very thinly traded. There simply aren’t enough active investors with sizable foreign exchange currency holdings in China for such a market to take off.
HKEx has therefore unveiled the blueprint for a facility to promote liquidity in the secondary market by making yuan available to brokers. This would assist clients interested in investing in a yuan IPO in Hong Kong but that do not have ready access to Chinese currency. This may also come in handy with retail investors in Hong Kong, who traditionally borrow heavily on margin to invest in new issues. Current regulations cap the daily exchange of H.K. dollars into yuan at 20,000 yuan (about $3,045). The exact mechanics of the exchange’s program are still to be ironed out, however, and will have to be vetted by the regulatory authorities.
This brings us back to Cheung Kong’s REIT.
It helps that the maiden yuan equity issue in Hong Kong will be a REIT, as yield-based instruments are likely to be held and less actively traded by many investors.
With the markets roiled by the consequences of the Japanese earthquake, tsunami and nuclear crisis, a stable instrument, paying an attractive dividend, and secured by Grade A office buildings, shopping centers and a luxury hotel, all located in Beijing, the capital of one of the world’s fastest growing countries, might just be what investors need right now. Cheung Kong’s Li Ka-shing is not dubbed “Superman” for nothing.

Charities Turn to Currency Hedging

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Charities Turn to Currency Hedging

Some of the world's leading charities are turning to foreign-exchange hedging to protect their donations from unexpected lurches in the world's currency markets and better equip them to quickly deploy emergency funds to disaster sites such as northern Japan, where an earthquake and tsunami laid waste to large stretches of the coastline.
People working in the nongovernment aid sector estimate that charities and other nonprofit groups trade at least $6 billion a year in foreign exchange to cut back on currency conversion costs as they raise money across the world and to provide a ready supply of foreign funds to relief projects. World Vision Inc. is one of the pioneers in this growing part of the global foreign exchange market, trading over $1 billion a year in 73 different currencies.
"The most critical thing is how to preserve the value of donations, and you've got to use the most effective tools available and stay on top of the game," said World Vision's global treasurer, Kathryn Powers.
That means adopting a wide range of strategies—including foreign-exchange hedging—to protect World Vision's cash pile during bouts of currency volatility and sharply rising inflation rates in many of the countries in which it operates.
The growing involvement in the global foreign-exchange markets of non-government organizations and nonprofit groups underscores the rising importance of the world's single biggest asset class—foreign exchange. Over the past five years, many of the largest aid groups have been honing their financial skills to adapt to a more volatile economic environment. World Vision is a member of the Association of Financial Professionals and its executives have been invited to speak at financial conferences and are now plugged into the SWIFT—or Society for Worldwide Interbank Financial Telecommunication—banking network to speed up its transaction times and save money.
"It's all about squeezing out the last dime," Ms. Powers said.
A Christian humanitarian group based in Washington state, World Vision's efforts to stay on top of the sudden shifts in the global foreign-exchange markets are aided in large part by the geographical spread of its donation base. Around a third of its $2.6 billion a year in donations come in U.S. dollars, but large amounts also come from Australia, South Korea and Europe, which helps stabilize the value of its cash holdings.
"We have a natural geographical hedge," said Ms. Powers, who, before joining World Vision, worked as a currency trader at AT&T Inc. and also once helped build medical clinics in Malawi.
In addition, in many of the countries where World Vision delivers aid, it tries to use funds raised in the same currency. In West Africa, for instance, many currencies are pegged to the euro, so the charity tries where possible to deploy funds raised in Europe to reduce foreign-exchange costs. U.S. dollars, meanwhile, are still widely used in many of the world's poorer economies, eliminating foreign-exchange conversion costs.
But when those natural hedges aren't enough, World Vision doesn't shy away from stepping into futures markets, Ms. Powers said.
"The whole point is being able to deliver to women and children in need, and that requires certainty," she said.
In the case of Japan, World Vision's strategy is to use local funds that haven't already been committed to forward contracts to finance its relief efforts there, which include developing special sites to help children overcome the psychological impact of the disaster. Then World Vision will begin to tap into its global presence–including its currency positions–to get the necessary funds in place quickly, Ms. Power said in an interview earlier this week.
During late Asian trading Wednesday, the yen was trading at 80.93 yen to the dollar–close to a record high–compared with 83.30 yen shortly after the earthquake struck on Friday.
It's relatively easy to hedge in the larger world currencies, such as euros, yen and even New Zealand dollars, Ms. Powers said. The larger emerging markets such as South Africa also present relatively few problems.
But when World Vision looks into other countries such as Malawi and Zambia, it has to get a little bit more creative. "We have to examine the type and tenure of whatever instruments are available," Ms. Powers said, adding that often the best available option is to take forward positions on various commodities "but we're very careful when we do that."
Inflation also figures into World Vision's thinking. The charity regularly examines data from the International Monetary Fund and when a country's inflation rate rises 3% or more for three successive years then warning flags are raised. "Then we have a close look and see if there's something we need to do," such as buying up advance stocks of food or medical supplies, Ms. Powers said.

FACTBOX-How ECB currency intervention works

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FACTBOX-How ECB currency intervention works

(Reuters) - The European Central Bank has intervened alongside Japan, the United States, the United Kingdom and others to calm volatile foreign exchange markets in the wake of Japan's catastrophic earthquake, tsunami and nuclear disasters. [ID:nWEA9460]
Below is a factbox on how ECB currency interventions work and details of the central bank's previous interventions.

HOW IT INTERVENES
* The ECB can intervene in the foreign exchange markets without prior authority from euro zone or EU finance ministers. It can conduct sales or purchases of foreign exchange itself, or instruct national central banks that manage ECB reserves to conduct transactions on its behalf, or ask the same of foreign central banks with which it holds accounts.
* The ECB also can instruct the national central banks to transfer their own foreign exchange assets to the ECB, in exchange for an interest-bearing claim. This would increase the ECB's fire power about four-fold, but it has never used this authority.
* The ECB can fund foreign exchange interventions not only with its reserves but by other means, such as foreign exchange swaps, and swaps with other central banks.
* The ECB can fire its biggest cannon by coordinating its foreign exchange intervention with other major central banks.
In September 2000, it initiated a plan where the U.S. Federal Reserve and Bank of Japan joined it in buying euros to stem the single currency's sharp slide.
The action was followed by three waves of unilateral ECB intervention in November and succeeded in putting a floor under the euro at 82 cents. There had been no interventions since until Friday's move.

INTERVENTION POWERS
* The European Central Bank must conduct its foreign exchange operations within the framework of its primary objective, maintaining price stability. This means that if changes in the euro's value threaten inflationary or deflationary pressures, the ECB can intervene in the foreign exchange markets if price stability is at risk.
* European Union finance ministers have the authority to reach agreements on an exchange rate system for the euro, and can give general directions for exchange rate policy. The ECB can provide them with advice on these matters. The European Council of EU leaders agreed that it would exercise these powers in exceptional circumstances and without threatening the independence of the Eurosystem -- the ECB and national central banks.
In practice, EU finance ministers have never used these powers, leaving decisions on the euro and exchange rate policy up to the ECB.
* The ECB has a strong incentive to consult with finance ministers and keep them abreast of its thinking and any foreign exchange policy plans, because ministers have the authority to give currency direction. The monthly Eurogroup meeting of euro zone finance ministers and the ECB president is the usual forum for these discussions.