Yen Spikes Up Against Majors

The Japanese yen edged sharply higher against its major rivals in early deals on Thursday as majority of European equities fell after Italy paid its highest yield in 4-months to sell the six-month bills, sparking renewed worries over eurozone debt situation.

The yen typically strengthens in times of stock market decline as its safe haven status makes the currency more attractive to investors.

Italy auctioned EUR 8.5 billion in bills maturing on October 31, with the average rate rising to 1.77 percent from 1.12 percent last month. This put pressure on Treasury ahead of a sale of longer-term debt on Friday where yields are expected to increase further.

European markets are trading red, contrary to its Asian peers where markets were trading mostly higher after the Federal Reserve boosted its outlook for U.S. economic growth this year and reiterated its pledge to keep interest rates low until 2014.

The benchmark German DAX is currently down 38.7 points or 0.57 percent at 6,665.32, while France's CAC 40 is dropping more than 0.6 percent and the U.K.'s FTSE 100 is almost flat around 6:00 am ET.

In economic news, Japanese all industry activity declined for a second consecutive month in February amid a contraction in production, data from the Ministry of Economy, Trade and Industry showed today.

The all industry activity index dropped 0.1 percent month-on-month in February, following a 1 percent decline in January and 1.7 percent gain in December. The pace of decline, however, was slower than the 0.2 percent drop expected.

On a yearly basis, the all industry activity index rose 1.3 percent after logging a 0.4 percent drop in January.

The yen rose to 80.82 against the US dollar around 5:45 am ET, its highest level since April 17. If the Japanese currency strengthens further, likely resistance level is seen around the 80.30/35 area.

The Federal Reserve left interest rates at near-zero levels yesterday and reiterated that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

Fed Chairman Bernanke assured that all policy tools remain at the Fed's disposal, but analysts say the Fed's optimistic outlook takes additional asset purchases off the table barring a turn for the worse for the economy.

The yen advanced to a 2-day high of 88.97 against the Swiss franc and 106.84 against the euro around 6:00 am ET. On the upside, the yen may find target levels at 106.30 against the common currency and 88.50 against the alpine unit.

The intensification of the euro area debt crisis hampered financial integration in the region last year and thereby significantly affected the transmission of the monetary policy, the European Central Bank said in a report published today.

"The intensification of the sovereign bond crisis strongly affected the euro area financial system. As a result, the integration of markets has deteriorated further," the bank said in its annual report on financial integration in Europe.

Meanwhile, the eurozone economic confidence declined more than expected to 92.8 in April from revised 94.5 in March, survey results from European Commission showed today. Economists were forecasting the index to drop to 94.2.

The yen also advanced to as high as 130.84 against the pound before leveling off around 6:00 am ET. On the upside, the yen may target resistance at 130.50.

Confidence among British consumers climbed to its highest level in nine months in March as households turned less concerned about the economy and employment prospects, a survey by Nationwide Building Society showed. The consumer confidence index rose to 53 in March, the highest since June 2011, from 44 in February. Economists had forecast a slight fall to 43.

The lower-yielding yen also strengthened against the high-yielding commodity currencies in early deals Thursday, hitting intra-day highs of 82.23 against the Canadian dollar, 83.82 against the Australian dollar and 66.01 against the New Zealand dollar around 6:00 am ET.

The Reserve Bank of New Zealand left its benchmark interest rate unchanged at 2.50 percent today. RBNZ Governor Alan Bollard also said inflation remains under control. The Official Cash Rate has been 2.50 percent since March 2011.

Looking ahead, the preliminary German inflation for April, the U.S. weekly jobless claims and pending home sales data are expected in the New York session.