18 January 2001, 10:41  Asia FX Review: Dollar/yen hits 18-month high of 119.90

By Masataka Nakamura, BridgeNews
Tokyo--Jan. 18--U.S. dollar/yen rose to an 18-month high of 119.90 in Asia Thursday as U.S. Treasury Secretary designate Paul O'Neill's assurance that he favored a strong dollar and a technical break of 119.40, causing frenzied buying. But the upward move was countered by heavy selling from investment banks when the pair neared 120.00.
Early in the session, the dollar/yen gained ground, after U.S. names started buying the pair aggressively, to clear large selling orders in the 119.00-119.20 area. Dealers said that the Asian market took a bullish dollar/yen stance, after U.S. Treasury Secretary designate Paul Oneill's assured Wednesday that the US would maintain strong dollar policy.
Option related dollar buying against yen, related with unwinding of ganma short positions also put upward pressures on the dollar/yen, dealers said.
However, dealers were a little nervous about USD/JPY as it approached 120.00. There is talk that option players might sell the pair aggressively if it nears 120.00 to defend option knock-outs. If it does break above that level, dealers expect another wave of buying.
Then, the dollar/yen started falling again, after the buying from U.S. names fizzled. In addition, investment banks sold the pair aggressively, followed by broad-profit taking selling. Those selling pressed the pair from 119.90 to 118.80.
Yasuji Yamanaka, deputy general manager of treasury department at Nikko Trust & Banking said that broad-dollar long liquidation pressures weighed on dollar/yen. Yamanaka also noted that dollar/yen showed extreme volatility because of uncertainty over short term direction and prevalent jobbing activity.
Then, the downside momentum was countered by the buying from Mideast, but the pair was top heavy during the session, as large amounts of stale long dollar/yen positions were left on tops.
Some dealers also said that a rise in the Tokyo stock market, with expectations of Liberal Democratic Party's stock measures, was one of the catalyst for a fall in the dollar against the yen.
The Nikkei 225 stock index ended the morning session, 1.6% up from the previous session. After a rise in Nasdaq, technology stocks was leading a rise.
LDP officials also inflated the expectations about the measures on stocks, after the first meeting of the LDP special panel on stock measures.
LDP stock panel Okiharau Yasuoka said that the panel will discuss measures such as outright buying operation of the intermediate term JGB and a return to the zero interest rate policy.
Japan LDP stock panel Hideyuki Aizawa said that the newly-formed stock panel will meet daily on stock measures. Aizawa also mentioned that price keeping operation for stocks is likely to be a topic of discussion He also said that there is no opposition to corporate stock buybacks.
Parliament member of the LDP Fumio Kishida regards the current weakening in the Japanese currency as a reflection of the declining confidence in the nation's economy. Dealers did not attach much importance to his comment, as the Ministry of Finance takes charge of the forex policy.
Euro/dollar rose, after good buying was conducted around the 0.9360 area.
U.S. names bought the EUR/USD during the Asian session. However, the selling interest in the 0.9390-0.9400 area, was capping the pair. Dealers said that there is stronger fresh buying interest in euro/dollar, after the recent fall cut down speculative euro/dollar long positions to larger extent.
Some believe that market players are looking for the levels to create fresh long positions on the assumption that a corrective move was over. Euro/yen moved largely as a function of dollar/yen trading, with lack of big capital flow during the Asian session.
Overall, the euro/dollar and other euro cross lurked in the background, while dealers focused on a volatile dollar/yen trading. End
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