TOKYO (AFX-ASIA) - The dollar/yen rose in midafternoon after an earlier test of support levels failed to make fresh headway and with the euro, which has recently driven the yen higher, seeing mild corrective gains, dealers said.
Standard & Poor's MMS managing analyst Hideki Naito said the market is technically driven, with repatriation flows on investment bank recommendations helping to keep the euro under pressure, despite the mild corrective bounce.
The dollar/yen earlier attempted to test levels around mid-118 but the failure to make new headway saw a rebound in the U.S. currency. "We just failed to keep below the 119 level ... so there was some unwinding of short-dollar positions," Naito said, adding that there are few fundamentals driving the market, other than the continued downward bias in the euro.
"Over the past couple of days there have been repatriation flows," he said, noting talk that Lehman, Salomon and other U.S. houses are downgrading their recommendations on European assets in favour of the U.S. and Japan.
"Maybe some Japanese fund managers strictly follow the recommendations," he said, noting trust bank selling of the euro/yen and possible shifts of funds by pension managers from euro to dollar or yen assets.
Naito said the market ignored today's negative comments on the Japanese economy by government officials.
Finance Minister Masajuro Shiokawa said this morning that he believes first quarter GDP will show a "good" figure but the following quarter will be weaker.
Meanwhile, State Minister for Economic and Fiscal Policy Heizo Takenaka said the condition of the economy is severe and he cannot say whether first quarter growth will be positive or negative.
"The market's eye is on the euro," Naito said, adding: "Everyone agrees on the deterioration in the Japanese economy, not only Takenaka."
The euro remains relatively supported near-term due to concerns over intervention, although the currency is expected to continue its downtrend.
"There is some concern over ... any possible comment on intervention," Naito said, despite the expectation that the European Central Bank will avoid stepping into the market any time soon. "Speculative short-euro positions have not built up like last time (the bank intervened) so even if they step in, the impact will be limited," he said.
Naito said the ECB would become concerned if the euro headed towards historical lows against the dollar at around 0.8225, with a near-term range in the cross seen around 82.50-85.00 cents.
On the flip side, a large level of stop-loss trigger points that would create further euro selling are seen around the 80 cent level, providing a target for speculators who want to push the currency lower, he added.