TOKYO (AFX-ASIA) - The yen was locked in tight trading ranges in midafternoon trading, little impacted by the sharp decline of the local equity market and the weaker-than-expected industrial output data, dealers said.
The Ministry of Economy, Trade and Industry said industrial output in February rose 0.4 pct month-on-month after a fall of 4.2 pct in January, compared with a consensus forecast for a month-on-month rise of 1.9 pct.
Hachijuni Bank foreign exchange dealer Naoya Kozu said there was a short-lived knee-jerk reaction to the weak output data but market attention is now focusing on the forthcoming Bank of Japan quarterly Tankan report on business sentiment, which is due for release Monday. The consensus forecast among local economists is for the large manufacturers' diffusion index to come in at plus one, down sharply from plus 10 in the December report.
Hachijuni's Kozu, however, said the Tankan's poor outcome may also only have a short-lived impact on the yen as the currency has of late been relatively unaffected by economic data.
"The market had largely priced in the expected deterioration in the headline number to a large extent, even the likely fall in the DI to the negative zone," Kozu said.
"The yen may remain solid on the downside, as long as positive expectations for policy responses by the government are alive." Local media reports suggested that the Japanese government may hammer out a new economic stimulus package, featuring structural reforms, in early April.
"But, if this package fails to satisfy investors' expectations, the market may begin to re-emphasize the weak economic fundamentals, and resume yen-selling," Kozu said.
The Hachijuni Bank dealer forecast the yen will range from 121-125 yen in the next week.
The euro was firmer ahead of the central council meeting of the European Central Bank later today. The consensus view is that the ECB will either cut short-term interest rates by 25 basis points either today or at the central council meeting on 11 April.