July 27 - The yen hits 4-and-a-half month high, and gold touches a new record on U.S. debt ceiling problem; StanChart says China cannot sell U.S. Treasuries. Arnold Gay reports.
The Japanese yen rose to a 4-and-a-half month high against the dollar, and gold hit a new record Wednesday (July 27) amid a lack of progress on the U.S. debt ceiling problem. Analysts say a stronger move by the yen was only tempered by fears of intervention from Tokyo. Japanese policymakers are reportedly considering short-term intervention to stem the persistent rise in the yen. The Australian dollar also rose to a 29-year high, after second quarter inflation numbers effectively ended market speculation of a rate cut by the Australian central bank. Asia-Pacific currencies have already been rising, as traders anticipate more action by policymakers to keep inflation at bay. HSBC's Garry Evans also expects capital inflows to return to the region, as investors take refuge from debt crises in the U.S. and Europe. SOUNDBITE (English) HSBC'S CHIEF GLOBAL EQUITY STRATEGIST GARRY EVANS SAYING: "In the next 6 to 12 months, the concerns are going to shift rather more towards growth. People will worry about whether growth in the developed world will continue, and they'll worry about global cyclical growth. And if you look at some markets like China, but also India and Brazil, I think people will start to say growth is fine, inflation is no longer a risk. It's a actually a risk and reward balance, China and these other markets start looking more interesting." Asian stocks traded mixed Wednesday, as investors continue to hedge by buying gold. But recent risk related sell-offs have been measured, with many investors aware of the political nature of the U.S. crisis. Standard Chartered's Stephen Green adds large international investors, including Beijing, have few safe alternatives to the U.S. Treasury market. SOUNDBITE (English) STANDARD CHARTERED'S HEAD OF CHINA RESEARCH, STEPHEN GREEN, SAYING: "FX reserves are still rising, they're rising about $30 to $40 billion a month. What do you with that cash? Really, there are two places to park that amount of cash, and its in the euro and U.S. debt markets. That's one consideration, the other consideration is that if China started to sell its Treasuries, and the fallout in the value of the dollar and the U.S. debt markets will be huge. And so China knows it cannot really sell its U.S. holdings." Japan's Nikkei fell about half a percent but stayed above the 10,000 mark, supported by expectations of firm corporate earnings. Sydney stocks ended lower amid fears the Reserve Bank of Australia could hike rates sooner than expected. Shares in Hong Kong traded largely flat while Shanghai stocks rose in late afternoon trade. Arnold Gay, Reuters.