FOREX-Dollar rises against yen as Japan ready to declare state of emergency

* Euro steady against dollar
* Euro 3M cross currency basis shrinks to smallest in 12
years
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Olga Cotaga
LONDON, April 6 (Reuters) - The U.S. dollar stalled against
most currencies on Monday but continued its rise versus the
Japanese yen as investors digested the fact that the rate of
deaths from coronavirus in Europe was slowing while deaths in
Japan and elsewhere in Asia accelerated.
With traders getting back some of the "risk on" mood, the
yen fell, while the Australian and New Zealand dollars, which
tend to benefit from sharper risk appetite, rose.
"The FX implication is yen weakness as Japan's virus
situation worsens and equities bounce," said Kit Juckes, Societe
Generale's macro strategist.
The greenback rose 0.7% to 109.38 yen JPY=EBS , a 10-day
high, while the Australian dollar rose 1.3% at 0.6071 per U.S.
dollar AUD=D3 .
The euro was neutral versus the U.S. currency at 1.0805
EUR=EBS . An index which tracks the dollar against six major
currencies was also flat at 100.68 =USD .
Juckes said the game-changer for the euro "would be a move
towards some version of 'Coronabonds' at tomorrow's Eurogroup
meeting".
"Absent that, I'm not sure the euro has much home-grown
potential to bounce," he said.
Euro zone finance ministers are likely to converge on
Tuesday on three quick options to support the economy during the
coronavirus epidemic. Italy reported its lowest daily death toll for more than two
weeks on Sunday. France also reported a slowing daily death
toll, and Germany its fourth straight daily drop in new cases.
But Indonesia on Monday confirmed 218 new infections, the
biggest daily jump since the first cases were announced a month
ago.
Japan also will declare a state of emergency as early as
Tuesday, media reported, as a shortage of beds and a rise in
cases linked to hospitals push Tokyo's medical system to the
brink of collapse. Speculators' net short U.S. dollar positioning in the latest
week touched its highest since May 2018, according to Reuters
calculations and U.S. Commodity Futures Trading Commission data
released on Friday. As leveraged funds expect the U.S. currency to weaken, the
cost to swap euros into dollars on a three-month basis eased,
showing there is "less pressure" on euro, yen and sterling
investors to fund dollar requirements, Monex Europe analyst
Simon Harvey said.
Dollar borrowing rates via the 3-month euro-dollar FX swap
EURCBS3M=ICAP fell to a 12-year low of minus 65 basis points,
indicating that European borrowers are able to borrow the
greenback at a discount.
This rate had swung to a 2011 European crisis-era high of
more than 150 bps two weeks earlier.
"But the funding strain is still there," Harvey said.
Elsewhere, the euro was up 0.1% versus the Swiss franc at
1.0569 EURCHF=EBS .
The amount of cash that domestic commercial banks hold with
the Swiss National Bank (SNB) rose last week, data showed on
Monday. The pound was up 0.2% at $1.2292 GBP=D3 and up 0.3%
against the euro at 87.89 pence EURGBP=D3 , having slipped
overnight on reports that Prime Minister Boris Johnson had been
hospitalized with persistent COVID-19 symptoms.