LONDON (AFX) - The dollar weakened further against the yen in featureless midday trade, with many participants reluctant to take fresh positions ahead of Wednesday's Federal Reserve interest rate decision, analysts said.
Mark Henry, currency analyst at GNI, said the yen's upward momentum was more flow-driven as opposed to actual economic news and was only a temporary reprieve.
"Recent data is mixed at best. The underlying picture hasn't changed. The Japanese economy still has desperate trouble," he said. Henry added the dollar's failure to break above 120.00 yen also undermined the currency.
The latest economic news was discounted. Japanese industrial production rose 1.5 pct in December from November, the Ministry of Economy, Trade and Industry said. The figure was higher than consensus estimates of a 1.2 pct rise.
The Fed's two-day monetary policy meeting remained the dominant focus, and its outcome should provide near-term direction for the market. Many analysts forecast the central bank to cut short-term rates by 50 basis points.
Meanwhile, euro/dollar held a soft tone, hovering around 0.9200 usd ahead of Thursday's European Central Bank rate decision. No change in policy is expected, according to analysts.
In the UK, sterling traded within a range between 1.4640 to 1.4560 usd. If the Fed eases rates by 50 basis points Wednesday, analysts expect sterling to weaken, taking its cues from euro/dollar.
But from a long-term perspective, GNI's Henry said sentiment for sterling was positive. "The UK economy in general is outperforming the U.S. That should help sterling," he said.