TOKYO (AFX-ASIA) - The dollar turned top-heavy against the yen in midafternoon trading after the Bank of Japan's nine policy board members voted unanimously to maintain its existing guidelines, dealers said.
While the market had expected no change in the BoJ's policy directive, the dollar earlier reached a high of 124.33 yen as the length of the meeting compared to the last time the central bank board met prompted speculation that the BoJ might take fresh action, they said.
Nomura Trust and Banking Co Ltd foreign exchange deputy manager Teruhisa Moriyasu said that as the BoJ left its policy unchanged as expected, the dollar is likely to remain top-heavy next week, possibly testing the 123 yen level.
"If there had been an additional move by the BoJ, the yen would have sold sharply," he said.
The dollar is expected to remain hostage to an apparent change in Japan's foreign exchange stance following reported comments by a senior finance ministry official, and amid underlying concerns over the economic crisis in Argentina, dealers said.
Vice Finance Minister for International Affairs Haruhiko Kuroda was reported to have said structural reforms will not necessarily cause the yen to weaken, reversing earlier remarks that Japan would accept a further weakening of the yen if such a development reflects economic fundamentals.
"His original remarks helped guide the dollar over the 126 yen level but since he apparently reversed the earlier comments, participants no longer can play on this lead," Kokusai Securities Co Ltd foreign exchange manager Minoru Shioiri said.
Nomura Trust's Moriyasu said worries over an economic crisis in emerging countries may not necessarily exert extremely strong downward pressure on the dollar, citing the relatively small amount of short positions built up in the yen.
"There may even be the possibility that the dollar will eventually attract some flight-to-safety asset flow," he said.
The euro continued to weaken against the dollar following the bounce in US markets overnight, with investors also waiting for fresh US leads from next week's remarks by Fed chairman Alan Greenspan, dealers said.
"The euro is not likely to move on its own lead but will continue to be influenced by the US lead," Nomura's Moriyasu said, citing the muted reaction to reported remarks by Bank of France Governor Jean-Claude Trichet.
Trichet said he believes a strong euro was in the best interest of the eurozone, but this failed to bolster the European currency. "Unless fresh leads emerge, the euro is most likely to trade in the 0.8350-0.8650 usd," Moriyasu said.