TOKYO (AFX-ASIA) - The yen was lower at midafternoon after Prime Minister Junichiro Koizumi's policy address failed to provide fresh trading leads, dealers said.
Koizumi simply reiterated his strong commitment to structural reforms, while explaining proposals that were included in the emergency economic stimulus package released in early April.
However, the upturn of the local equity market supported the yen against the dollar, spreading the view that foreign investors may further commit new funds to the local market, dealers said.
Chuo Mitsui Trust and Banking foreign exchange assistant manager Tomoyuku Nakamura, however, questioned the sustainability of capital inflows from foreign investors.
"It is generally believed that foreign investors are now actively adjusting the weighting of Japanese equities on hopes for progress in structural reforms," he said.
"But just on such expectations, they are not likely to buy Japanese equities as aggressively as they did in 1999."
Chuo Mitsui's Nakamura also downplayed the impact of yen buying by foreign investors in relation to investment in Japanese equities, adding that "they will not try to buy (Japanese) equities without hedging the related currency risks."
Dealers also cited a possible rise in dollar purchases by Japanese importers and institutional investors as key elements in preventing the sharp appreciation of the yen.
They said that any sharp rise in the yen will also be limited, as the Japanese financial authorities may attempt, mainly verbally, to halt any appreciation beyond reasonable levels.
Nakamura, however, said the dollar will remain top-heavy against the yen, citing the underlying optimism over Koizumi's policy and selling by Japanese exporters.
The euro was easier against the dollar on profit-taking following its gains last Friday on the back of U.S. economic data, including much-worse-than-expected job data, dealers said.
Nakamura said he expects the euro to continue to drift sideways around the 0.90 usd level, without finding clear direction due to concerns over the spillover effects of a worsening U.S. economy onto the Euro-zone.
"At any rate, the euro is not likely to gain strong momentum to move towards parity," he said.