TOKYO (AFX) - The euro was higher against other major currencies in mid-afternoon trading in Tokyo, bolstered by renewed expectations that the European Central Bank may decide to cut interest rates at Thursday's policy meeting, dealers said.
The speculation surfaced that the International Monetary Fund may refer to the need for rate cuts in the euro-zone in its report to be published later this week prior to the G-7 meeting, they said.
"Such speculation may continue to bolster the euro at least until Thursday's ECB meeting," a Credit Lyonnais foreign exchange dealer said.
"However, the euro may not be able to rally to beyond the 92 usd level."
"But, if there is no rate cut on Thursday, the euro will resume a steep fall once again."
The yen was pushed off its highs on profit-taking, triggered by expectations that the ruling Liberal Democratic Party's policy research chief Shizuka Kamei may become the party's chief secretary in a new Junichiro Koizumi cabinet, dealers said.
Earlier, the yen rallied to an intra-session high of 121.40 yen against the dollar on news that Koizumi expanded his lead over close rival Ryutaro Hashimoto in the party's presidential election.
"If Kamei takes that key position, we have to worry about delay in the process of structural reforms, even under a new Koizumi's cabinet," the Credit Lyonnais dealer said.
Kamei called for large tax cuts as a core proposal of his policy platform.
Koizumi, meanwhile, said in an interview with the Nihon Keizai Shimbun that he may put higher emphasis on economic recovery in the near-term over structural reforms.
The Credit Lyonnais dealer said that nervous trading is likely to lock the dollar/yen sector in the 120.50-124.00 range until there is a firm result in the LDP election.
Some caution may appear and leave the dollar/yen sector directionless, dealers said, in the run-up to the weekend meeting of G-7 finance ministers and central bank governors in Washington. "Remarks by policymakers on their stance towards the yen may continue to draw close attention," the Credit Lyonnais dealer said.