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Dollar gains against yen ahead of Bank of Japan meeting

By Paul McBeth

Friday 19th December 2008

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The New Zealand dollar gained against the yen ahead of the Bank of Japan meeting on monetary policy, after Japanese authorities heightened their rhetoric in talking down the currency.

Japanese Finance Minister Shoichi Nakagawa told a media conference he had "the means" to restrict the yen's advance, prompting speculation that the central bank will sell yen to drive it lower. The US dollar bounced back from a 12-week low against the euro following the Federal Reserve's historic cut to the rate band to zero to 0.25%. A cut in Japan's benchmark rate from 0.3% currently, will polish the appeal of currencies offering higher yields, such as the Australian and New Zealand dollars.

"Japanese authorities are trying to jawbone down the yen," said Khoon Goh, senior markets economist at ANZ National Bank. "The yield continues to be a stand out" for the kiwi, encouraging the carry trade, where investors take out low interest loans to invest in higher-yielding, or riskier assets, he said.

Still, the BOJ has little room to cut rates further and more attention will be given to "what measures it will use" to restore the Japan's economy, he said.

The kiwi rose to 53.06 yen from 52.48 yen yesterday, and fell to 59.22 US cents from 59.81 cents yesterday. It dropped to 84.65 Australian cents from 84.90 cents, and increased to 41.51 euro cents from 41.31 cents.

Goh said the kiwi may trade between 58.75 US cents and 60.50 cents today. The weakness of the US dollar is seeing the kiwi "grind up" by default, Goh said. He said the kiwi has to go lower to help the economy climb out of recession.

New Zealand's economy is showing more signs of weakness, with the ANZ National Bank December survey into business confidence slumping to a net 21% expectation of falling profits over the next 12 months, a record low since the series began in 1988.

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