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Hope grows that Fed''s next interest rate increase will be the last
From AFX News Ltd.
via Forbes
Sunday, June 26, 2005
http://www.Forbes.com/markets/feeds/afx/2005/06/26/afx2111385.html
TIANJIN, China -- Japan hopes to rebalance its foreign exchange
reserves with less US dollars when the dollar regains enough
strength to withstand such a reform, a Japanese finance official
said at a meeting of Asian and European finance ministers here.
Hiroshi Watanabe, vice minister of finance for international affairs
with Japan's Finance Ministry, said Japan did not intend to switch
its holdings of US dollars into other currencies at the moment.
"But if the dollar is very strong and there is going to be no
negative impact from the move, in that case, we're going to move,"
he said.
Japan has the highest levels of foreign exchange holdings in the
world, totalling $842.47 billion in May.
Critics claim the heavy reliance on dollar-denominated assets within
these holdings leaves Japan too exposed to volatility in the dollar
and partly finances a large and unhealthy US deficit.
Watanabe said Japan in future wants to align the currency mix of its
foreign exchange reserves with that of its trade settlement account,
taking into account the increasing importance of the euro.
European Commissioner for Economic and Financial Affairs Joaquin
Almunia said on the sidelines of the same meeting that he had not
raised with Japan the euro's role in Japan's foreign exchange
holdings.
He said European authorities are not promoting the use of the euro
in the world.
However, China's Premier Wen Jiabao spoke at the opening session of
the Tianjin meeting of the need to maintain the stability of the
major reserve currencies.
He also said the role of the euro in achieving international
financial stability should be supported.
Almunia said after Wen's speech: "It's up to the markets and up to
the players to decide if they want or if they don't want to have
euros in their portfolios."
Increased buying of euro-denominated assets could see a rise in the
currency's value and further erode the competitiveness of European
exports.
A recovery in the US dollar, however, saw the European currency drop
last week to its lowest levels since last August.
Almunia said he has no concerns about the current price or
volatility of the euro.
"If you look at the present exchange rate for the euro, it's very
close to the average of these trends, so we're not concerned about
that. We think that is normal in a world of flexible exchange
rates."
On the yen, Watanabe said he did not expect a significant movement
in Japan's currency if the yuan revalues.
China's Wen earlier today recommitted his country to gradually
adopting a more flexible exchange rate, without saying when.
The yuan is deemed by China's biggest trading partners to be too
cheap and is expected to appreciate if revalued, possibly
contributing to a rise in other Asian currencies.
Watanabe said the yen is linked to the Chinese currency only through
Japan's exports to China and the relationship between the yuan and
the currencies of Japan's other trading partners, including the US
and Asian nations.
"I think there will be no direct impact if the yuan appreciates," he
said.
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