By Masataka Nakamura
Tokyo, July 23 (BridgeNews) - A sharp decline in the Japanese stock market Monday weakened the yen against the U.S. dollar, though dollar/yen was a little top heavy above the 123.50 level capped by long liquidation pressures. The euro/dollar moved little in Asia, while sterling/dollar fell from 1.4285 to 1.4233 on the U.K. Telegraph's report that the Ernst & Young ITEM Club called on the Bank of England to sell sterling and buy euro.
Dollar/yen bounced from 123.08 to 123.62 in early morning trade on buying from European names before retreating to 123.40 on selling from Japanese exporters and U.S. names.
The pair kept a strong tone for the rest of the session, largely because of weakness of the domestic stock market.
The dollar/yen tone was also underpinned by the fact that G7 officials failed to mention anything negative for the dollar at the weekend summit meeting, Ken Landon, chief currency strategist at Deutsche Bank, said. The G7 communique issued by the leaders of the Group of Seven countries omitted any mention of the two most sensitive macroeconomic issues, the strong U.S. dollar and euro-zone interest rates.
Meanwhile, dollar/yen was a little top heavy above the 123.50 level through the Asian session.
Landon said long liquidation pressures seemed to limit a rise in dollar/yen for today.
The Nikkei 225 Stock Average fell to below the March 13 close of 11,819.70, the lowest close since the Japanese "bubble economy" burst in 1990.
The benchmark index closed down 2.5% led by a sharp fall in banking sector stocks and telecom stocks. The Nikkei ended the session down 298.76 points at 11,609.63, slightly up after having hit an intraday low of 11,531.68.
In the afternoon, Minister of Finance Masajyuro Shiokawa tried to voice a positive remark for the stock market. However, his comment failed to have an immediate impact.
Shiokawa said he had talks with Prime Minister Junichiro Koizumi over stocks. Shiokawa also said the recent decline in stocks is a little violent. He noted that he asked the chairman of the securities industry to invigorate the stock market.
Japanese economic data had little impact. The trade surplus was 761.7 billion yen in June, down 36.1% on the year, in line with market expectations of 757 billion yen.
The service industry index, which accounts for 60% of the nation's economy, rose 0.4% in May, weaker than the expected 1.1% rise. Japan's index of consumer confidence improved to 40.9 in June from 40.2 in March, according to quarterly data released Monday by the Cabinet Office.
In other currency trading, euro/dollar fell to a low of 0.8700 in early morning trade on some selling from a major U.S. name. However, the market lacked follow-through action.
Overall, euro/dollar was stuck in a 0.8700-0.8720 range.
Sterling/dollar fell from 1.4285 to 1.4233 as Monday's U.K. Telegraph cited a report by the Ernst & Young ITEM Club, making an urgent call on the Bank of England to sell sterling and buy euro to save the economy from impending disaster.
Meanwhile, sterling/dollar moved around 1.4240 aimlessly for most of the session after a downside move early in the Asian morning. Euro/Swiss Franc hovered around 1.5050 for most of the Asian session, with a lack of significant flows.