Tuesday, February 06, 2007

 

"They Still Have Deflation In Japan": Paulson

Bloomberg reports on currency developments. "U.S. Treasury Secretary Henry Paulson said that Japan is still struggling with deflation and that the yen is set in a competitive foreign-exchange market. 'We have a Japanese economy that's growing, but they still have deflation in Japan,' Paulson said during testimony today before the House Ways and Means Committee. 'The yen is trading in a competitive marketplace based on economic fundamentals.'"

"Japan's currency has declined 4.8 percent against the dollar and 5.5 percent versus the euro since August. Japan has refrained from intervening in the foreign-exchange market to sell the yen for almost three years, Paulson noted. The yen erased its gains after his remarks, sinking to 120.44 per dollar from 120.10 in about five minutes."

"Federal Reserve Bank of San Francisco President Janet Yellen said China's policy of limiting gains in the yuan creates 'vulnerabilities' similar to those of Asian nations who suffered a financial crisis a decade ago."

"Yellen also said the main five nations that suffered in the crisis in 1997 and 1998, Thailand, South Korea, Indonesia, the Philippines and Malaysia, risk backtracking on free-market policies that have helped those economies expand in the past decade."

"'Despite China's recent successes, it still shares some of the vulnerabilities faced by the Asian crisis countries in the 1990s,' Yellen said. The yuan 'is still much less flexible than the currencies of the Asia crisis countries,' she said."

"China limits gains or losses in the yuan to 0.3 percent a day and has amassed a record $1 trillion in foreign-exchange reserves through managing its currency. It has allowed the currency to gain about 6.5 percent since ending a strict peg to the dollar in July 2005."

Yellen said risky lending practices and inflexible exchange rates vulnerable to 'speculative attacks' were among the problems faced by Asian nations at the time."

"The Fed, then led by Alan Greenspan, cut interest rates in 1998 to help offset the effects of the Asian financial collapse. Commenting on China's currency, also known as the renminbi, Yellen said, 'The central bank has resisted pressure for more rapid appreciation of the renminbi by intervening in the foreign exchange market and building up its holdings of foreign reserves.'"

"She said China could one day 'play a major role in promoting regional exchange-rate flexibility' and that an accelerated pace of gains in the yuan would lead to faster appreciation of currencies throughout East Asia. An inflexible yuan 'complicates the use of monetary policy' in bringing about a slowdown to China's 'booming economy,' she added."

"While Asian nations have overhauled their banking systems and made their currencies more flexible in the past decade, Yellen said 'continued vigilance will be required to prevent or ameliorate crises in the future.' She warned that the changes could be scaled back since the region became more prosperous."

From MarketWatch. "Gold futures closed higher Tuesday to tally a two-session gain of nearly $7 an ounce as recent strength in energy prices and ongoing tension in the Middle East helped fuel stronger demand for the precious metal. Gold for April delivery closed up $2.60 at $658.70 an ounce on the New York Mercantile Exchange, after reaching a high of $663.70."

"It's up $6.70 from Friday's closing level, but the contract is still below Thursday's close of $663, which was a nearly six-month high."

"Gold has rallied back, 'and continues to see scaled down support, as firm oil prices generate concerns about inflation,' said James Moore, an analyst at TheBullionDesk.com. Crude-oil futures rose Tuesday, holding below the $59-a-barrel level on uncertainty ahead of the Wednesday's data on U.S. petroleum supplies. But March crude had climbed earlier in the session to a high of $59.99 as bitter cold in the Northeast drove heating-oil prices higher."

"In currencies trading, the U.S. dollar fell against the euro and British pound, but traded nearly flat against the yen."

"For gold, 'dips remain well supported for now, suggesting investors/speculators are still keen to hold gold,' Moore said. Traders will potentially support the yellow metal to reach the $676 high from last July, once the $655 chart congestion is cleared, he said."

"Other metals prices also posted gains. March silver rose 11.5 cents to close at $13.675 an ounce. April platinum closed up 1.6%, or $18.60, at $1,190.30 an ounce and March palladium rose $1.70 to end at $344.05 an ounce."

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