Tokyo: The dollar gained against the yen in Asian trade on Monday after US authorities bailed out two mortgage finance giants, easing investor worries over the future of global markets, dealers said.
The dollar firmed to 108.32 yen in Tokyo noon trade from 107.67 in New York late on Friday, 5 September. The euro gained to $1.4350 from $1.4260 and to 155.42 yen 153.57.
The US Treasury Department announced on Sunday, 7 September when markets were closed, that it will put Freddie Mac and Fannie Mae under strict federal control and may invest up to a total $of 200 billion in them, dealers said.
Fannie Mae and Freddie Mac, government-chartered, shareholder-owned firms that provide liquidity to the US housing market, have been whipsawed by the financial meltdown in the past year.
The companies have lost some 90% of their value on fears of further losses from mortgage defaults by “subprime” customers, who were given loans despite patchy credit histories.
“Markets reacted positively at first glance to the news because it dispelled uncertainty about credit and fears of a worsening housing market,” said Masatsugu Miyata, forex dealer at Hachijuni Bank.
After a volatile morning session, trade started to calm down “as investors were taking a second glance at the bailout plan and its details and are unsure whether it will solve the financial crisis. They are cautious,” he added.
The US government plan could potentially cost taxpayers billions of dollars and Washington’s decision to buy back preferred stock would mean common shareholders still risk losing millions of dollars, dealers said.
The market was further relieved by reports that South Korean and Japanese banking companies were considering investing in Lehman Brothers, one of the Wall Street banks worst-hit by the subprime debacle.
The euro firmed against the dollar as market players raked in profit from the single European currency’s recent one-year lows against the greenback, dealers said.
But the rise did not signal a shift in market sentiment over the outlook in the eurozone, whose 15-nation economy contracted in the second quarter for the first time since the bloc’s creation in 1999.
The pound firmed to $1.7845 from $1.7653 in Tokyo morning trade.
The Canadian dollar slipped to $1.0560 US from $1.0591 after Prime Minister Stephen Harper called snap elections on Sunday.