Reply #44: Yen Nears 7-Week High on Speculation China Closer to Yuan Shift

[RawMaterials]

May 5 (Bloomberg) -- The yen rose to near a seven-week high against the dollar on speculation China, Asia's second-largest economy, is closer to making the yuan more flexible.

Japan's currency rose even after Chinese Finance Minister Jin Renqing said yesterday that expectations China may change its decade-old currency peg to the dollar makes it harder to implement a shift. A stronger yuan may reduce the competitiveness of China's exports compared with Japan.

``The yen is still getting a bid on the China revaluation speculation,'' said Adrian Foster, head of currency strategy at Dresdner Kleinwort Wasserstein in London. ``The market has the attitude that China would deny it regardless, and maintains its own view that a revaluation is imminent.''

Against the dollar, the yen traded at 104.31 at 11:19 a.m. in London, from 104.56 in New York late yesterday, when it rose to the strongest since March 17, according to electronic currency- dealing system EBS. It was at 135.22 per euro, less than 1 percent from a 2 1/2-month high.

The dollar fell earlier today against the euro and Swiss franc after reports of an explosion at the British consulate in New York. Losses were pared after city police said nobody was injured in the blast, which occurred at 3:35 a.m. local time.

Against the euro, the dollar was at $1.2963, from $1.2946.

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`They Are Ready'

Goldman Sachs Group Inc. expects China to move away from the peg of about 8.3 per dollar ``at any time.'' Jim O'Neill, the firm's head of global economics research in London, said late yesterday Jin's comments didn't change his outlook.

``Technically, tactically and strategically they are ready,'' said Frank Gong, chief China economist at JPMorgan Chase & Co. in Hong Kong, who predicted six days ago a yuan revaluation may occur this week. He said this week still ``is the first window of opportunity.''

Some analysts expect China to hold off on any shift in the peg. HSBC Holdings Plc doesn't expect a change until next year and Morgan Stanley predicts China will wait until the second half of 2005.

``The general message that we have tended to get is that the time is not quite right for China to do anything,'' said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. ``We are probably in a situation where we should see the dollar finding support against the yen. The yen may decline to 104.70 today, Rennie said.

U.S. Jobs

Losses in the dollar may be limited by speculation a government report tomorrow will show U.S. employment growth accelerated in April. Unemployment in Germany, by contrast, is near the highest since World War II.

The dollar has risen 4.7 percent against the euro so far this year on expectations U.S. growth will outpace the euro region. U.S. employers probably added 174,000 jobs to their payrolls in April, more than the 110,000 in March, according to the median estimate of 80 economists surveyed by Bloomberg.

``Gains of 150,000, 170,000 plus would be fairly dollar positive because it would continue to paint the U.S. in a fairly favorable light compared with the euro zone,'' said Ian Gunner, head of currency strategy at Mellon Financial Corp. in London. Gunner said the dollar may rise as high as $1.25 per euro ``over the next few weeks.''


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