By Masataka Nakamura
Tokyo, July 2 (BridgeNews) - The yen traded in a tight range against the dollar after the June Tankan release. The data itself was better than expected, but it did not alter the negative perception about the Japanese economy. There is a feeling in the market that the long waited Tankan release failed to set a direction for the yen. The U.S. dollar/yen hit the key 125.00 point, but heavy selling interest triggered there prevented the pair from testing higher.
Early in the session, the dollar/yen lost ground after the June BOJ Tankan report. Profit-taking selling pressures emerged, as the Tankan survey was better than expected. Stop loss selling was triggered below the 124.50 area.
Japanese manufacturers were more pessimistic about business conditions in June than they were in March, the Bank of Japan said Monday in its quarterly short-term economic "tankan" survey of corporations. The BOJ said its diffusion index (DI) for major Japanese manufacturers stood at -16 in June, versus -5 in its March survey, while the DI for non-manufacturers stood at -13 in June unchanged from March. Meanwhile, dollar losses against the yen due to the Tankan report were short-lived, as good bids emerged near the 124.30 area, reversing the downward momentum for dollar/yen.
Then the dollar/yen gained further upward momentum, while the Japanese stock market extended its losses. U.S. investment banks and other U.S. names were noted to be active buyers of dollar/yen, leading the rise. However, dollar/yen was capped near the 125.00 area because of profit taking selling pressures and selling from exporters near the 125.00 area. Yen buying against euro also limited the top side of the dollar/yen. Option-related selling pressures were strong around the 125.00 area. Dealers were trying to take profits, cutting down out-of-the money call options established a few weeks ago. Meanwhile, dealers pointed out that dollar/yen buying pressures related to the 125.00 trigger were not so large.
In the afternoon, further dollar/yen long liquidation, coupled with euro/yen selling, sent the dollar/yen down, but the downside move was again halted near the 124.40 area, facing heavy bids.
Overall, yen trading was listless after the tankan report. Takeharu Miki, manager of foreign exchange and treasury division at Bank of Tokyo Mitsubishi said that the June Tankan survey failed to set the direction of the yen, adding that the market has already discounted weak state of the Japanese economy. Miki at BTM also noted that the U.S. dollar itself does not sound so attractive to buy now than it used to be, while interest rates are already very low with uncertainty over the economy.
At the U.S.-Japan summit meeting held during the weekend President Bush did not offer any suggestions on how Japan could tackle its economic problems following his first meeting with Junichiro Koizumi. Instead, talks between the two leaders were broad-ranging, and the opportunity marked a success in d furthering personal relations between the two leaders, rather than offering any substantive results. The meeting failed to inspire the market.
Japan's Vice Minister for International Affairs Haruhiko Kuroda said that the tankan results and the foreign exchange markets were not necessarily linked, suggesting that the tankan's weakness won't lead to a weakening of the yen. He added that a rebound in the euro would be good for the global economy.
The comments had no effect on the foreign exchange market. Liberal Democratic Party Secretary General Taku Yamasaki said it is difficult to cut social welfare and pension spending. Yamasaki also said he wants regional areas to raise funds independently. Yamasaki said Japan must work to avoid an economic contraction, though he did not elaborate on any measures.
The outstanding balance of special loans extended by the Bank of Japan to maintain stability in the financial system at the end of June totaled 522.6 billion yen, compared with 600.9 billion at the end of May, according to revised fund supply and demand data for June released by the BOJ Monday. The data did not attract attention from dealers.
Euro/dollar remained top heavy above the 0.8500 area. Fresh selling interest is seen above the 0.8500 area. In addition, euro/yen selling weighed on the pair through the Asian session. Dealers noted that the underlying tone for the pair remained negative, adding that a recovery in Friday's session was merely as a result of short covering before the weekend.
Meanwhile the market expects inter-bank traders to start buying the euro/dollar from 0.8460 on the back of the buying interest near the 0.8450 area, Overall, trading is sluggish Monday. While the Hong Kong market was closed, activity for European currencies was rather limited in Asia.