US dollar falls as Yen gains

Tokyo (May 23)  A robust set of trade data from Japan had the yen back on the rise on Monday after three weeks of solid gains for the dollar which have given fresh heart to those still hoping for another rally as U.S. interest rates rise.

A Group of Seven finance ministers' meeting concluded on Saturday with the United States warning Japan against intervening to weaken the yen, a known rift that is perceived as preventing Tokyo from acting.

Top of the agenda this week is whether U.S. data adds to the case for a June or July hike in rates, with a handful of appearances by U.S. Federal Reserve policymakers expected to back the case for a move within months.

Sterling, and sterling options markets, were roughly steady after last week's rollercoaster ride following a shift in market odds away from a vote for a Brexit from the European Union in next month's referendum.

With stock markets back on the defensive in Europe and Asia, the yen - traditionally a haven for capital when markets are worried about growth – rose 0.6 percent to 109.41 per dollar and 0.8 percent against the euro.

"The risks are to the upside for the dollar, but the key is that we would remain selective in our long dollar positions. It is not an across the board bullishness," said Bank of America Merrill Lynch strategist Kamal Sharma.

"We like being long against commodity currencies. We would sell the dollar against the yen on rallies."

Why negative rates are meaningless to currency  traders

Data on Monday showed Japan's trade balance in April was 823.5 billion yen ($7.50 billion), against economists' forecasts for a 492.8 billion yen increase. Japan logged a trade surplus for the third consecutive month.

If a country's exports exceed its imports, as in Japan's recent case, there is in theory a high demand for its goods and therefore for its currency.

"The April trade surplus was due in large part to weak imports. Still, the data was enough to trigger yen buying," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"The trade numbers came out against a political backdrop that does not favour Japan intervening to weaken the yen, thus making it relatively easy for participants to buy back the yen."

Source: CNBC