TOKYO (AFX-ASIA) - The yen turned top-heavy in midafternoon trade, pressured by a loss of strong upward momentum in the equity market, dealers said.
Earlier, the yen reached a high of 122.95 yen, as the Nikkei 225 index approached the psychologically important 14,000 point level, but failed to advance further as the bellwether index saw its early gains trimmed back.
Bayerische Hypo und Vereinsbank foreign exchange director Yoshihiko Kobayashi said foreign equity investment has accounted for the recent choppy movement of the yen.
The yen's top-side was also capped by caution ahead of the announcement of index changes by Morgan Stanley Capital International later this week, dealers said.
There is some speculation that the announcement may trigger sizeable capital outflows from Japan and that some leading stocks such as NTT and Toyota may see their weighting reduced, they said.
However, Bayerische's Kobayashi said the actual announcement, expected on Saturday, may not have any material impact on the yen, adding that "the implementation of any change (in the MSCI global index) will not happen over the next six months or so."
Due to a lack of market-moving economic indicators both in Japan and the U.S., technical factors may emerge as a key driving force in the foreign exchange market, dealers said.
"While the dollar is continuing to see heavy resistance at around 124.35 yen, if this level is breached clearly, it would not be a surprise if the dollar extends its gains ... eventually to over the 130 yen level," Kobayashi said.
"On the downside, if the dollar fails to find support the 121.50 yen level, the (U.S.) unit may enter a prolonged downtrend."
The euro lost upward momentum due to a lack of follow-through buying following an overnight rebound on news that Deutsche Telekom and France Telecom will sell their stakes in Sprint, dealers said.
Bayerische's Kobayashi, while basically bullish about the long-term prospect for the currency, said the euro will remain exposed to downside risk in the near-term.
"If major support at the 0.8750 usd level is broken, the currency may drop towards 0.8850 usd," he said.