The Japanese yen strengthened against its key counterparts in the late Asian session on Thursday amid risk aversion following a contraction in China manufacturing activity and renewed concerns about possibility of Fed rolling back its asset purchase program.
In testimony to the Joint Economic Committee of Congress yesterday, Federal Reserve Chairman Ben Bernanke told that a premature ending of monthly bond buying program could lead interest rates to rise temporarily, while affecting economic recovery and low inflation risks.
However, Bernanke also indicated that the central bank may scale back bond buys "in the next few meetings" if the economic recovery continued. "The key to this program is the data," Bernanke said.
China's manufacturing activity declined unexpectedly in May, preliminary results of a survey by Markit Economics showed today.
The headline purchasing managers' index fell to a seven-month low of 49.6 in May from 50.4 in April. Economists expected the reading to remain unchanged from March's level
Capital spending by Japanese businesses may continue moderate uptrend in the coming months as companies' profits improve, the Bank of Japan said in its monthly report published today.
"Business fixed investment is projected to follow a moderate increasing trend, partly due to investment related to disaster prevention and energy, as corporate profits head toward improvement," the central bank said as it revised up its assessment of the economy.
The yen advanced to a 3-day high of 101.98 against the U.S. dollar, after having rebounded from 4-1/2-year low of 103.73 reached on Wednesday. If the yen extends uptrend, it may find resistance around 100.00 level.
The yen hit a 3-day high of 130.96 against the euro, up from near a 3-1/2-year low of 133.80 reached yesterday. On the upside, the yen may find resistance around 129.00 level.
The yen climbed to a 2-week high of 153.30 against the pound and a 3-week high of 104.44 against the Swiss franc, compared to yesterday's New York session close of 155.21 and 105.42, respectively. The next resistance level for the yen lies around 150.00 against the pound and 103.00 against the franc.
The yen firmed against the resource linked currencies also, approaching a 1-1/2-month high of 98.07 against the aussie, fresh 5-week high of 81.32 against the kiwi and a 3-week high of 97.68 against the loonie. If the yen extends uptrend, it is likely to pierce resistance level around 97.5 against the aussie, 80.00 against the kiwi and 96.00 against the loonie.
Looking ahead, PMIs from major European economies, second estimate of U.K. first quarter GDP data and Eurozone flash consumer sentiment index for May are scheduled for release in the European session.
The U.S. weekly jobless claims for the week ended May 17, new home sales for April and house price index for March are due in the New York session.
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