TOKYO (AFX-ASIA) - The dollar was firmer in midmorning after weak Japanese industrial output data,following earlier mild gains in the yen on the success of the ruling Liberal Democratic Party in Sunday's upper house elections, dealers said.
Friday's US GDP data, while weaker than anticipated, provided mixed signals for the economy, with a sharp drop in inventories increasing the possibility of a near-term rebound, they said.
"I have mixed feelings about the US GDP," BankOne foreign exchange vice president Masahiro Ishikawa said, adding: "If you focus on the Japanese economic problems, the yen should weaken."
The Ministry of Economy, Trade and Industry said this morning that it left its assessment of industrial production unchanged, with output continuing in a declining trend.
Industrial output in June fell 0.7 pct month-on-month, the fourth straight month of declines, after a fall of 1.2 pct in May.
METI also downgraded its July industrial output forecast to a decline of 2.3 pct, compared with the previous forecast of a 0.1 pct decline.
"Production in the IT-related sector, especially parts output, is still on a declining trend, mainly due to lower exports to the US and Europe amid falling demand," a ministry official said.
Ishikawa said that although the LDP upper house victory provides a strong mandate for the reform programme of Prime Minister Junichiro Koizumi, the jury is still out on the negative and potentially positive near-term impact of restructuring.
Investors will soon run out of patience if Koizumi fails to come up with some solid progress.
"One thing is sure is Koizumi will push ahead with reforms. What we don't know, is how much pain there will be. We want to see concrete proposals as soon as possible," Ishikawa said.
Meanwhile, the euro has lost some of its momentum seen in recent weeks as the outlook for the US economy seems less negative, with investors waiting to see the results of this Friday's key US payroll data.
"There's not much energy in the euro," Ishikawa said, adding that while the currency should strengthen further, it may have to wait until late summer or autumn before regaining its upward trend.