Yen slides as Japan heads towards state of emergency

London

THE US dollar stalled against most currencies on Monday but continued its rise versus the Japanese yen as the rate of deaths from Covid-19 in Europe slowed while deaths in Japan and elsewhere in Asia accelerated.

The yen fell, while the Australian and New Zealand dollars, which tend to benefit from sharper risk appetite, rose.

"The FX implication is yen weakness as Japan's virus situation worsens and equities bounce," said Kit Juckes, Societe Generale's macro strategist.

The dollar rose 0.5 per cent to 109 yen, after rising to a 10-day high of 109.38 earlier. The Australian dollar rose 1.3 per cent at 0.6071 per US dollar.

The euro was neutral versus the US currency at 1.0805. An index that tracks the dollar against six major currencies was also flat at 100.68.

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Mr Juckes said the game-changer for the euro "would be a move towards some version of 'Coronabonds' at the Eurogroup meeting". "Absent that, I'm not sure the euro has much home-grown potential to bounce," he said.

Eurozone finance ministers are likely to converge on Tuesday on three quick options to support the economy during the Covid-19 epidemic.

Italy reported its lowest daily death toll for more than two weeks on Sunday. France also reported a slowing daily death toll, and Germany its fourth straight daily drop in new cases. But Indonesia on Monday confirmed 218 new infections, the biggest daily jump since the first cases were announced a month ago.

Japan also will declare a state of emergency as early as Tuesday, media reported, as a shortage of beds and a rise in cases linked to hospitals push Tokyo's medical system to the brink of collapse.

However, market gauges for one-month implied volatility in the euro and Japanese yen have calmed down, falling to their lowest in one month, a sign that investors do not expect any longer wild price swings in euro-dollar and dollar-yen in the next couple of weeks.

As leveraged funds expect the US currency to weaken, the cost to swap euros into dollars on a three-month basis eased, showing there is "less pressure" on euro, yen and sterling investors to fund dollar requirements, Monex Europe analyst Simon Harvey said.

Dollar borrowing rates via the three-month euro-dollar FX swap fell to a 12-year low of minus 65 basis points, indicating that European borrowers are able to borrow the greenback at a discount.

Elsewhere, the euro was up 0.1 per cent versus the Swiss franc at 1.0569.

The pound was up 0.3 per cent at US$1.2308 and up 0.5 per cent against the euro at 87.71 pence, having slipped overnight on reports that UK Prime Minister Boris Johnson had been hospitalised with persistent Covid-19 symptoms. REUTERS