Yen weakens on low inflation figures

| August 25, 2006 | 0 Comments

The Japanese yen declined during the week as new inflation figures raised the possibility that deflation has not yet been completely reversed in the Asian nation’s economy. Core consumer inflation was up only 0.2 percent in the latest figures, against a predicted 0.5 percent raise. All of this called into question the Bank of Japan decision in July to end its zero interest rate policy. At that time, most analysts expected at least one more rate hike before the end of the year, but now another rise is not expected until next year.

As a result of this new data, the yen dropped 0.8 percent during the week versus the euro, to ¥149.68. The Japanese currency also was 1.1 percent lower to ¥88.84 in relation to the Australian dollar, fell 1.3 percent to ¥117.26 against the US dollar, and declined by 1.7 percent to ¥221.46 versus sterling.

Sterling strengthened over the week on positive economic data as well as on the possibility that central banks might be ready to buy more of the UK currency. The pound was up 0.4 percent to $1.8888 versus the US dollar, while it gained 0.7 percent against the Swiss franc to SFr2.3371 and added 0.9 percent to £0.6758 in relation to the euro.

The US dollar was .4 percent higher versus the euro to $1.2767, despite weak housing data.

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