Euro steadies as yen takes spotlight

THE YEN yesterday stole the limelight from the euro after a senior Japanese government official warned that the American economy was already looking "bubble-like" and that further interest-rate cuts should be expected this year, writes Andrew Garfield.

The remarks by Eisuke Sakakibara - known as Mr Yen because of his influence on the currency markets - helped send Europe's five-day-old single currency down to 130.8 yen from 132.9 at yesterday's close.

The dollar slipped against the yen from 111.8 on Monday to 111.4 - a 19-month low.

There were also rumours that the European Central Bank had been discreetly intervening to stop the euro rising further after Monday's strong markets debut. "After the euro-phoria things have steadied," said Nick Stamenkovic at Creditanstalt/ BankAustria Futures. "But it is still very early days. The ECB wants a strong euro, but it also wants a stable currency."

Paul Donovan, economist at Warburg Dillon Read, the City investment bank, believes the yen will continue to appreciate. He says that the yen could rise to 90 to 100 to the dollar, a level not seen since 1995. Because of Japan's reluctance to print money, bond yields have risen from 0.7 per cent to 2 per cent, enhancing the yen's attraction.

The pound strengthened a touch to 1.408 euros from 1.4068 yesterday despite the possibility of a further UK interest-rate cut later this week.