Euro Trades Trouble-Free in Asian Debut

Asian foreign-exchange dealers kicked off a new era today as trading opened in the euro, the currency policymakers hope will unify Europe’s economy, banish economic malaise and give the almighty greenback a run for its money as the international currency of choice.

The euro strengthened after it opened at around $1.1667 in early Asian trading, the level set Thursday by European finance ministers. During the first several hours, it remained in a relatively tight range of $1.1700 to $1.1835. Trading was quiet for the most part, with several small, early deals reportedly done by speculators or dealers interested in gaining their 15 minutes of fame.

“Dealers are very excited about being the first ones to handle the new currency,” said Yohei Muramatsu, Tokyo foreign-exchange manager with Commerzbank. “People want to leave their name in history.”

Analysts said it appeared that all the frantic last-minute preparations and the years of promotional hype were paying off with a trouble-free introduction--although the first big test would come a little later as the high-volume London and New York markets started trading.

The slow start also reflects some early caution by big customers--and traders themselves--who are expected to spend the next several days watching the market, assessing its volatility and testing its limits. “It will be a while before we see how solid the market is,” said an official in the international treasury division of Dai-Ichi Kangyo Bank. “We will be fumbling in the dark for the first week.”

A better assessment of the currency’s fundamentals will come after the market has circled the globe a few times and the novelty wears off, traders said.

“Once the euro-phoria is over, the euro could become weaker,” predicted Masayuki Niwa, foreign-exchange manager with Yasuda Trust & Banking. One concern among euro-bearers is that a large number of left-leaning European governments will launch big public-spending programs that undermine the currency.

Others, however, predicted sustained strength for the euro over the medium term, citing avid interest from Japanese institutional customers such as trust and pension fund managers. The weaker dollar has created an incentive to move capital out of U.S. stocks and bonds and into European instruments, they point out. Still others saw a possibility that the European Central Bank would intervene--or buy euros--to maintain stability if the currency weakened too much.

Either way, says Seiji Adachi, an analyst with Daiwa Research Institute, Japanese investors will initially allocate only new funds into euros while maintaining their existing dollar positions, an approach that should minimize volatility.

In early trading, the yen opened around 113.60, slightly lower against the dollar.

Japanese government officials, meanwhile, are watching the euro’s progress very carefully. In recent weeks they have stepped up a promotion campaign to make the yen a third international reserve currency, after the dollar and euro, for widespread use in global trade and finance. The subtext is Japan’s fear that its troubled economy and financial markets will be eclipsed by a revitalized Europe.

Prime Minister Keizo Obuchi plans to push the case for the yen with European leaders during a trip this week to France, Germany and Italy.

Most analysts are skeptical of a global role for the yen any time soon, however, given Japan’s structural problems and heavy bureaucratic hand.

For the European Union, meanwhile, the euro promises to intensify economic integration among its 290 million people and 11 member nations. Policymakers expect the euro to reduce transaction and currency-exchange costs, spur competition and force some tough, politically unpopular restructuring on companies and workers.

In Asian dealing rooms, meanwhile, responsibility for trading the new currency Monday morning generally fell to specialists already used to dealing in marks, francs and other European currencies. From their perspective, this was hardly a revolution.

“We traders are quite flexible,” said Takao Sako, branch manager with UBS. “We sit there and trade. If it’s euro-yen, we can do it.”

There will be a three-year grace period as old European currencies are phased out and the euro finds its legs. While this gives Europeans time to adjust, it also creates some problems of its own.

While customers will be able to keep their mark or other currency accounts at their bank, the banks can only trade euros among themselves, creating the need for two sets of books.

Futures contracts in individual European currencies also will continue to mature over the next year, analysts said, even though trading in the individual currencies will end. “That could be quite a hassle for back-room operations,” said Masayuki Niwa, foreign-exchange manager with Yasuda Trust & Banking Co.

Chiaki Kitada in The Times’ Tokyo bureau contributed to this report.