By Masataka Nakamura
Tokyo, July 25 (BridgeNews) - The U.S. dollar rose against the yen in Asia on Wednesday, inspired by U.S. Treasury Secretary Paul O'Neill's comment indicating that the U.S. would maintain its strong dollar policy. Profit-taking pressure around 124.50, coupled with a recovery in the Japanese stock market, checked the upward momentum of the pair. In afternoon trade, dollar/yen was stuck in a very narrow range.
In an interview with the Financial Times, O'Neill said U.S. productivity justified a strong dollar, adding that the structural weaknesses in the European economy is reflected in the euro's current value. The comments led to an early rally in the dollar against the majors.
Moreover, O'Neill reportedly said he has no intention of changing the strong dollar policy.
Yasuji Yamanaka, deputy general manager of the treasury department at Nikko Trust & Banking said that the reported remarks contributed to the dollar gains early in the session.
Euro/dollar began with a dip to 0.8727 in early trade. U.S. names were prominent sellers when the market tested the downside.
The dollar/yen also gained ground, led by buying from inter-bank traders.
Then, European names conducted aggressive euro/yen buying, which supported euro/dollar and contributed to further gains in the dollar/yen. Early losses on the Tokyo stock market also underpinned euro/yen. However, the upward momentum of the cross was countered after the market met good selling pressures above 108.70.
This, coupled with euro/yen selling interest near the 108.80 area, weighed on dollar/yen.
In the Asian afternoon, the market was fairly quiet. Dollar/yen was sandwiched by offers above 124.40 and bids below 124.20, some of which were placed later in the Asian morning. Euro/dollar saw little volatility in the afternoon, with few participants trading. Yamanaka said that option gamma long positions partially explained why the market was so slow.
Overall, the yen's movement against the dollar and euro was relatively narrow, with traders following the movement of the Nikkei 225 stock index to some extent, Yamanaka said. The Nikkei 225 stock average ended at 11,891.61, up 8.36 points or 0.07% from the previous session. The benchmark hit a high of 12,054,30 on short covering during the day's trade, rising above the key 12,000-level for the fist time since July 18.
However, the gains in equities were trimmed in the afternoon session. Market participants were disappointed with a lack of the details in a meeting of the ruling coalition to discuss measures to buoy stocks. The vice secretary general of the Liberal Democratic Party, Nobuo Kyuma, said after the meeting with other coalition officials that they would resume debate over reform for securities tax after the Upper House election on Sunday.
He said that it was not appropriate for coalition officials to make detailed comments on their plans now.
Comments by Bank of Japan Deputy Gov. Sakuya Fujiwara's comment failed to inspire the market. Fujiwara said that the foreign exchange is not the domain of the central bank, the BOJ is merely an agent for the Ministry of Finance.
Traders also shrugged off news that Japan's corporate service price index averaged 95.9 (1995=100) in June, down 1.0% on the year and down 0.1% on the month. The 1.0% fall was the largest decline since November 1999.