Japan government calls for stable FX, seeks to jawbone strong yen

Asian Stock Markets

Japan’s top government spokesman warned on Wednesday that stable currency market moves were “extremely important”, signalling concern over recent yen gains that could cool a strengthening economic recovery. 

Japanese demand for yen also saw the dollar break last year’s low and skid to a 15-month trough at 107.01, dragging the U.S. currency down broadly.

That in turn pressured Japan’s Nikkei which slipped as much as 1.4 percent to test four-month lows. Dealers said there was a lot of focus on the 200-day moving average at 21,031 as a break there would ring bearish alarm bells. The Nikkei was last down 0.4 percent at 21,154.17.

Other Asian markets were steadier, as were E-Minis for the S&P 500. MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.8 percent, pulled higher by South Korea and Hong Kong indices.

Moves elsewhere were tentative with investors clearly scarred by the return of volatility.

BofA Merrill Lynch’s February Fund Manager Survey found a record one-month jump in the net percentage of investors taking out protection against a sharp fall in equity markets.

Funds were rotating into cash and out of equities, reducing their stock allocation to a net 43 percent overweight, from 55 percent, the largest one-month decline in two years.

Much now rested on what the U.S. consumer price report showed for January, given it was the risk of accelerating inflation that triggered the global rout in the first place.

Headline consumer price inflation is forecast to slow to an annual 1.9 percent and core inflation to 1.7 percent, an outcome that could help calm nerves. The concern is the figures could surprise on the high side as wages did a couple of weeks ago.

In currency markets, the U.S. dollar was under fire again losing 0.2 percent on a basket of currencies to 89.5.

The euro firmed to $1.2378 and away from last week’s trough at $1.2204. It was aided by expectations German GDP data later on Wednesday would show strong growth.

Analysts said investors were becoming nervous about the prospect of swelling U.S. budget and trade deficits given the passage of huge tax cuts and spending plans.

Spot gold edged up 0.3 percent to $1,333.78 per ounce, leaving behind last week’s one-month low of $1,306.81.

Oil prices steadied for now, though concerns about oversupply were never far away.

U.S. crude futures eased 1 cent to $59.18 a barrel, while Brent futures gained 8 cents to $62.8.