Dollar Yen Hold Gains

The US dollar and the Japanese yen held gains due to a decline in risk sentiment and falling stock and commodity prices. US, European and Asian markets declined causing investors and traders to dump risky assets in favor of the safe haven offered by the dollar and yen. Tokyo’s Nikkei fell 0.5% and the S&P’s 500 Index suffered the worst one day percentage decline in three weeks. The dollar was also supported by banks seeking safe haven assets such as U.S. government bonds. Many traders believe that all the dollar buying is seasonal and demand from overseas corporations buying dollars in advance of years end. A Japanese trader said, “Hedge funds are cashing out their positions to prepare for year-end redemption requests from their clients. And that move is encouraging others to take profits as well.”

Bank of Japan Holds Rates Steady

The Bank of Japan held present interest rates, a move that was widely expected, and offered an improved assessment of the Japanese economy. The Kiwi dollar extended Thursday’s losses of 2% and against the greenback traded at $0.7256. The Aussie dollar which fell 1.6% on Thursday was helped by a Japanese asset manager who bought Australian dollars against the yen.

Trichet’s Remarks

Market reaction was subdued after remarks by ECB President Jean Claude Trichet who said it was too early to declare the recession over. Trichet also said that exceptional monetary policies would have to be phased out gradually. In a Speech at the 19th Frankfurt European Banking Congress Trichet said, “The mood in the financial system is one of relief. But as of today, it is too early to declare the crisis over.” About emergency measures Trichet stated, “Emergency treatment and strong medicines are sometimes necessary. But, if their use is prolonged, they can lead to dependence and even addiction.” Light trading is expected next week as Japanese markets close on Monday for a national holiday and US markets will close Thursday for Thanksgiving.