Stock turmoil likely to leave dollar at 105 yen


New York stocks have repeatedly fallen broadly in recent days, prompting market players there to cash in on profits and rush to safe havens.

They have switched away from high-flying information and technology shares and into traditional stocks supported by favorable earnings prospects.

Investors are now opting for even short-term Treasury bills, as the Federal Reserve appears unlikely to find any reason to raise interest rates in the wake of the stock market rout.

Earlier this year, U.S. bonds and notes rose on a bout of buying fueled by a Treasury buyback plan.

With this conservative trend gaining momentum worldwide, a strong pickup in foreign investment in Japanese stocks appears unlikely in the near term and the yen’s topside may be limited.

The market took comfort from the Bank of Japan’s March “tankan” survey, which showed a continued improvement in business sentiment in the January-March quarter and raised expectations of economic recovery at home. But the widely anticipated survey findings had been factored into share prices well before they were released Monday.

It remains anybody’s guess if a flight of money away from the U.S. financial markets, accompanied by panic dollar selling, is in the offing.

The massive correction on the New York stock market was long overdue and many investors have reacted calmly to the downturn, taking it as a healthy development.

Given low interest yields and increased government bond issues in Japan, it is unlikely yen-based securities will become the destination for a flight of money away from the U.S., if there is one.

The yen can hardly look attractive as a safe haven for cash deposits either.

By a process of elimination, the euro enters the picture.

After investor confidence in the euro has been badly shaken, however, euro-based financial products would also be shunned.

All told, there are few destinations for a flight of money away from the U.S. financial markets and any downturn in the dollar’s value could soon run its course.

In short, the dollar appears likely to continue hovering around 105 yen for the time being.