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Forex Flash: Cyprus developments supporting yen in near-term - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ believes that Yen strengthen overnight, benefiting from more risk averse trading conditions, reflecting heightened uncertainty regarding an external financial support package for Cyprus.

He adds that the country’s parliament rejected a EUR10 billion EU-led bailout package which required EUR5.8 billion of funding to be seized from Cypriot bank accounts. Luxembourg Finance Minister Frieden has called for euro-area finance ministers to reconvene “as soon as possible” to discuss putting together a new support package although it has been speculated that Germany is unwilling to compromise upon the requirement for depositors to take a hit.

He feels that the ECB will have to decide whether to give Cyprus more time or consider cutting off liquidity support to the country´s banks which increases the tail risk of a euro exit. Ahead of today´s Governing Council meeting, Hardman notes that the ECB has released a statement saying that it “reaffirms its commitment to provide liquidity as needed within the existing rules”. Further, he notes that Troika officials in Cyprus are reporting discussing further capital controls and the possible extension of a bank holiday through to the end of the week. Elsewhere, the Cypriot Finance Minister Sarris has flown to Moscow in an attempt to secure financial assistance from Russia. European officials continue to stress that developments in Cyprus are unique in an attempt to prevent a wider deterioration in investor confidence in euro-zone assets.

He finishes by writing, “We continue to believe that the negative impact of developments in Cyprus which have boosted safe haven demand for the yen in the near-term will likely prove short-lived. In Japan there have been no comments or mission statements setting out the new BoJ leadership’s position today to mark their first day in power as had been speculated in some quarters ahead of today’s FOMC meeting. As a result the next BoJ monetary policy meeting scheduled for the 4th April is expected to mark a significant shift to more aggressive BoJ easing which has been weighing upon the yen since the end of last year.”

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