By Masataka Nakamura, BridgeNews
Tokyo--Feb. 13--The U.S. dollar/yen and the euro/yen lost ground Tuesday, weighed down by profit taking. Rumors of Bank of Japan Governor Masaru Hayami's resignation, coupled with dollar demand through the Tokyo fixing, pushed the dollar/yen and euro/yen higher, but only temporarily. Markets reversed course after large euro/yen selling at 109.60-80. Overall, the market was cautious ahead of U.S. Fed Chairman Alan Greenspan's semi-annual congressional testimony.
Dollar/yen was initially supported at 117.30 on buying by Japanese and U.S. names. The rumor of BOJ Governor Masaru Hayami's resignation, which was rumored to have originated from a Johnson-Smick report, caused a spike up to 117.63.
In addition, the negative performance of the Tokyo stock market and dollar/yen demand ahead of the Tokyo fixing also contributed to a rise in the dollar/yen.
However, the upward move was countered by heavy euro/yen selling in the 109.60-80 area. Early buyers of dollar/yen and euro/yen cut their positions to prevent further losses. The denial of the Hayami resignation rumor also prompted some selling.
A BOJ spokesman said Tuesday he hadn't heard "at all" that the central bank Governor Masaru Hayami would resign.
Euro/dollar basically moved as a function of euro/yen trade. Selling pressures in the cross drove the pair down to below the 0.9300 area. In the afternoon, foreign exchange trading settled down, as dealers refrained from extending positions ahead of Greenspan's testimony. Major markets moved sideways.
Japanese officials commented on BoJ's monetary decision Friday, but their comments failed to inspire the market.
Finance Minister Kiichi Miyazawa said the G7 has not decided on how to word its statement of response to the Bank of Japan's cut in the official discount rate Friday. The statement is due to be issued after G7 finance ministers and central bankers meet in Italy Saturday.
Minister for financial services Hakuo Yanagisawa said Friday's BOJ rate cut is good to prevent a credit crunch. Yanagisawa also said banks must raise profits.
Taro Aso, Japan's state minister for economic and monetary policy, said he saw an economic upturn in Japan in the January-March quarter after consolidation in October-December. His comment failed to attract attention from market participants.
The BOJ maintained its basic economic assessment in the February report, though it conceded an increase in the downside risk. The BOJ said the central bank is watchful about economic uncertainty in foreign countries and financial markets both at home and abroad. The BOJ economic report failed to affect the market.
Japan's Prime Minister Yoshiro Mori was the target of widespread criticism Tuesday for continuing a game of golf rather than returning to his crisis management response room after a Japanese ship was rammed and sunk by a U.S. submarine Friday. Public outrage over Mori's slow response may deal another blow to the prime minister's already low voter support ratings of less than 20%. The Australian dollar/U.S. dollar was confined to 0.5478-99 with three local banks on the offer and another local bank on the bid. It was trading in an hourly bear flag pattern defined by 0.5370-0.5400 and was beset by the same technical factors as the euro/dollar. The New Zealand dollar/U.S. dollar saw 0.4375-95, ignoring slightly firmer than expected retail trade data (+1.0% in December, compared with an expected +0.7%) and neutral trade data (-NZ$58 million in December compared with an expected NZ$50 million). End