TOKYO (AFX-ASIA) - The dollar gave back some of its gains in afternoon trade, after spiking earlier due to what dealers said was Japanese authorities' yen-weakening intervention.
At 1.10 pm, the dollar was trading at 110.81 yen. The dollar has traded in a range of 110.55-111.29 yen so far in Tokyo.
In New York overnight, speculators attempted to pushed the dollar past the 110.07 yen level, touched on Tuesday in New York - but failed with the US unit weakening to near 110.55, dealers said.
In early trade ahead of the Tokyo opening, the dollar regained its strength against the yen on the back of what dealers observed to be yen-selling by the central bank, sending the exchange rate to 111.35 at one point before receding to below 111.00.
"The Bank of Japan could step into the market at any time," said Akihiro Yuki, a currency trader at the Chiba Bank. "Fears (of the central bank's yen-selling intervention) could cap (the dollar's gains against the yen) for some time," added Chiba Bank's Yuki.
The Bank of Japan boosted the dollar against the yen in New York trading Tuesday through the Reserve Bank of New York, due to fears that a strong yen will damage Japanese exporters by making their goods less price competitive abroad and shrinking the value of their repatriated overseas earnings.
The meeting of finance ministers and central bankers from the Group of Seven (G7) in Dubai on Sept 20 called for "more flexibility in exchange rates," with currency traders interpreting the line in the G7 statement as an implicit message from the US that it wants its trade partners that maintain chronic surpluses, namely China and Japan, to let their currencies appreciate against the dollar to reduce their export competitiveness.
The finance ministry said Tuesday it spent 4.46 trln yen between Aug 26 and Sept 26 "on manipulation to balance foreign exchange rates."
The authorities spent some 9.0 trln yen in the January to July period to try to stem the yen's rise, according to previously figures. This total was itself well above the record 7.6 trln yen set for all of 1999.
Moreover, the Ministry of Finance is now considering raising the ceiling on government borrowing by 10-20 trln yen from the current 79 trln to finance interventions in the foreign exchange markets, in a bid to underscore its commitment to stem excessive appreciation of the yen, according to the Nihon Keizai Shimbun.
Traders and analysts generally expect that Japanese authorities will want the 110 yen level to hold given market expectations that a breach could open up a fast break lower, with any yen strengthening needing to be done in an orderly manner.
Despite Japanese authorities' efforts to pull the yen lower, traders believe the market bias remains higher for the yen.
"The (central bank's) intervention in the morning, if it was actually done by the Bank of Japan, was merely an act of smoothing currency moves," said Chiba Bank's Yuki.
Yuki said market participants recall a similar pattern in the last year where the Bank of Japan sold the yen for dollars through proxies in a bid to weaken its own currency to around the 125 yen level, but the dollar gradually moved toward the 118 yen level.
"The current situation is really alike, and we feel this could happen again this time," added Yuki.
Tokyo 1.05 pm Sydney 11.50 am
Dollar
yen 110.84 down from 110.98
sfr 1.3119 up from 1.3118
Euro
usd 1.1751 up from 1.1741
stg 0.7034 up from 0.7031
yen 130.25 down from 130.30
sfr 1.5423 up from 1.5416
Sterling
usd 1.6707 up from 1.6695
yen 185.18 down from 185.19
sfr 2.1918 up from 2.1927
Australian dollar
usd 0.6849 down from 0.6864
stg 0.4100 down from 0.4112
yen 75.914 down from 76.167
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