Money and Metals

Bloomberg reports on the Japanese yen. "The yen may extend its decline against the dollar as a report today is forecast to show Japanese household spending slowed in December. The yen touched a four-year low versus the U.S. currency yesterday when data showed Japanese retail sales fell 0.3 percent last month from a year earlier. Decelerating household spending may keep the Bank of Japan from raising interest rates at its Feb. 20 meeting."

"The yen remains vulnerable because the weaker consumption and lower inflation is making it difficult for the BOJ to increase rates, said Michael Malpede, a senior currency analyst in Chicago at Man Global Research."

"Japan's currency fell to 121.74 per dollar at 7 a.m. in Tokyo from 121.54 on Jan. 26. It touched 122.19, the weakest since 122.85 on Dec. 13, 2002. It also fell to 157.74 per euro from 156.99, approaching its record low of 158.62 set on Jan. 24."

"The yen could fall to between 123 and 124 per dollar, and 160 against the euro, 'in the next couple of weeks' as economic data continues to erode the case for raising interest rates, Malpede said."

"Japan's overall household spending is expected to fall 1.2 percent from last year while the jobless rate will hold at 4 percent, according to the median estimates in Bloomberg surveys."

"'The trend has been toward a very weak yen,' said Dennis Gartman, trader, economist and editor of the Suffolk, Virginia- based Gartman Letter. The yen will weaken 'as long as the BOJ continues to back off any attempt to raise rates. People continue to borrow in yen and invest anywhere else.'"

The Financial Times. "The yen hit a four-year low against the US dollar on Monday, intensifying fears that the rising level of currency-based 'carry trades' by hedge fund investors could jolt markets if these positions were suddenly unwound."

"Many economists and bankers suspect that carry trade activity is an important factor behind the yen’s weakness. Carry trades are deals in which investors borrow in currencies with low interest rates, such as the yen and the Swiss franc, to invest in those that pay higher rates, such as the Australian dollar."

"According to Barclays Capital, speculative carry trades have reached their highest level since the Russian crisis in 1998. It estimates that these amount to $34bn (€26bn) in net terms, calculated in constant 1998 prices for the yen, Swiss franc, sterling and Australian dollar."

"The scale of the carry trade, and its concentration in the yen, is raising fears among policymakers that a rapid unwinding of these trades could shake financial markets."

"'We have some very crowded trades in some areas [of currency markets] now ... and leverage is increasing,' Malcolm Knight, managing director of the Bank for International Settlements said in Davos at the weekend. 'Taken together, this leverage and carry trades create the prospect that we could have rapid repricing in financial markets.'"

From Reuters. "Gold turned lower by midafternoon on Monday and silver and other precious metals also fell, hurt by lower oil prices and a strengthened dollar ahead of the release of several key U.S. economic indicators later this week. Spot gold fell as low as $641.55 an ounce before recovering to $642.10/643.10 by 3:17 p.m. EST, compared with $645.00/646.00 in New York late on Friday."

"Most-active gold for February delivery on the COMEX division of the New York Mercantile Exchange settled down $1.50 at $643.20 an ounce, traded between $640.80 and $648.20 an ounce."

"'I think it's going to need some fresh bullish stimulus,' otherwise a 'near-term correction' was possible, said David Rinehimer, director of commodities research at Citigroup Global Markets. He added that the level of demand in the cash market was probably slowing with the rise in gold prices."

"Rinehimer said that the most recent U.S. Commodity Futures Trading Commission data showed noncommercial net long positions, basically speculation, in gold had a 'pretty good' build-up for the second consecutive week, though that was not surprising considered the market had moved up. Speculators in U.S. gold futures raised their net longs by 34 percent in the week to Jan. 23 as prices soared to new highs, according to the CFTC's most recent Commitment of Traders report."

"'The scale of data from the U.S. this week, as well as the Fed's rate decision, will likely keep conditions volatile,' TheBullionDesk.com said. 'I expect we will see gold spend a little more time consolidating in the $640-$650 area till the Fed decision and accompanying statement.'"

"In other precious metals, silver edged down to $13.14/13.21 an ounce from $13.31/13.38 at its previous close, while platinum fell to $1,163/1,168 an ounce from $1,171/1,177 in late in New York on Friday. Palladium fell $6 to $340/345 an ounce compared with its Friday's finish."

"Russia's Norilsk Nickel, the world's largest nickel and palladium miner, forecast a significant drop in precious metal production and steady nickel output in 2007 as it embarks on major reconstruction work."

"Oil fell more than a dollar to below $54 a barrel after Saudi Arabia's ambassador to the United States said current prices were good for consumers and producers and other OPEC members showed signs of hiking supplies for March."