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Foreign Exchange

Yen weakens as economy struggles, kiwi falls on quake

The yen declined early on Monday after economic reports suggested the Japanese economy is struggling to emerge from a downturn following March’s devastating earthquake and Tsunami.

The New Zealand dollar also fell sharply after two aftershocks hit the city of Christchuch, damaging buildings and causing injuries.

The yen traded at 80.42 against the US dollar, from 80.29 previously, after Japanese machinery orders unexpectedly fell in April for the first time in four months. Factory orders declined 3.3% from March, the Cabinet Office said. Sales of foreign-currency bonds by companies in Brazil and Australia to Japanese investors also led to outflows from the yen.

“The yen has weakened slightly and we have seen a modest bias to risk proxies after last week’s sell-off,” says Sue Trinh, a director at RBC Capital Markets in Hong Kong. “With a Bank of Japan meeting later this week, there is some speculation that there may be some action to support the economy.”

Japan’s economy probably shrank in the second quarter, economist say, after it declined at an annualized 3.5% in the first quarter, as companies face reduced demand following disruptions caused by the quake in March.

The New Zealand dollar dropped more than 100 points to as low as .8127, the lowest level since May 26, after Christchurch was hit by several strong aftershocks. Earthquakes with magnitudes between 4.4 and 6 hit New Zealand’s second-largest city, cutting power and shutting the city’s airport. The renewed seismic activity raised concerns among investors about the country’s ability to recover from the February quake that killed 180 people, say analysts.

Meanwhile, stocks fell in Asia and the euro touched the lowest level against the dollar for a month, amid continuing uncertainty about a sovereign debt crisis in Greece.

The euro traded at 1.4350 after Luxembourg’s Jean-Claude Juncker, who is president of the Euro Group of eurozone finance ministers, said a bailout for Greece must include some private-sector participation. Juncker is trying to arbitrate between German politicians, who are pushing for banks to share some of the pain of a Greek debt reprofiling, and the European Central Bank, which is resisting the plan.

“There are so many messages coming out of Europe and the overall impression is of a muddle,” says Tring. “That is why the euro is weakening.” The euro may get a boost if a solution to the Greek question is reached in the coming days, she adds.

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