Euro hits record high versus yen

LONDON: The euro hit a record high versus the yen on Monday after a strong earthquake hit northern Japan, while also holding close to record highs on the weak dollar.

NHK Television said the strong earthquake hit northern Japan near the city of Sendai and buildings swayed in the capital Tokyo, 302 km to the south. The quake measured six on a Japanese scale of seven in some areas in the north, and seven on the open-ended Richter scale.

The news pushed the euro to a record high of 138.54 yen and boosted the dollar to the day’s high of 117.22 yen in an otherwise quiet session due to holidays in London and New York. “The quake headline moved the yen. Nothing else could today because of the holidays,” said a trader at a European bank in Munich.

Elsewhere, dealers said market focus remained on the euro’s record high of $1.1886 as this week’s possible target, after it broke through its launch rate of $1.1747 on Friday.

Later, though, it will focus on a key euro zone interest rate decision next week.

The euro was a touch lower compared to its previous New York close, trading at $1.1815, but it was eyeing four-year highs above $1.1837 before the all-time highs. The euro was steady versus the Swiss franc after hitting its highest since mid-2001 of 1.5261 earlier in the session.

Record, rates in European focus: A better than expected reading from Germany’s key business index Ifo raised hopes for a second-half recovery for the euro zone’s largest economy. The business climate index showed a May reading of 87.6, a slight rise from April’s 86.6.

The euro traded a touch higher after the news, though dealers had not expected any reading to restrain the single currency’s rally and did not see it changing the rate outlook.

“Technically, very short-term the market is looking at the record high but in the back of people’s minds it will become more and more an issue about whether the ECB will cut interest rates by 25 or 50 basis points,” said Peter Fontaine, foreign exchange strategist at KBC in Brussels.

A string of comments from European Central Bank (ECB) policymakers on Friday sent the clearest signals yet that a soaring euro and lower inflation provide room for easier credit, increasing the likelihood of an interest rate cut at the June 5 meeting. “They have been massaging the market to understand that they are going to cut. The way they are talking now we are thinking it will be 50 basis points,” said Fontaine.

“If it’s 50 it should be bad for the euro in the short-term...but longer term it is still very much euro bullish.” ECB board member Tommaso Padoa-Schioppa was quoted in an Italian newspaper interview on Monday as saying there was no danger of deflation and that the recent surge in the value of the euro currency did not hurt growth in the euro zone.

French President Jacques Chirac said in a newspaper interview released on Sunday he did not expect recent currency market moves to be commented on at a summit next month of the Group of Eight world powers. —Reuters

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