TOKYO (AFX-ASIA) - The dollar was firmer against the yen in midafternoon, bolstered by active short-covering after weak industrial output data and declines on the local equity market, dealers said. Earlier in the day, the dollar was pushed to as low as 123.24 yen in an immediate reaction to the victory by the ruling Liberal Democratic Party in Sunday's upper house elections, dealers said. Nomura Trust and Banking Co Ltd foreign exchange deputy manager Teruhisa Moriyasu said the poor June industrial output data prompted investors to re-assess the fundamentals of Japan and triggered active short-covering on the dollar.
According to the data release by the Ministry of Economy, Trade and Industry, 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. "In particular, those who had built short positions on the dollar prior to the election rushed to unwind such positions," Moriyasu said. "Short-covering on the dollar is expected to continue for the rest of the week reflecting weak economic fundamentals in Japan." The decline of the Nikkei 225 index to a new post-bubble low this afternoon sparked more active short-covering on the dollar, encouraging the unit to come closer to the 125 yen level, dealers said. The dollar, however, lost clearer upward momentum due to caution over the outcome of the US non-farm payroll and consumer confidence data, due for release this week, they said.
The euro was rangebound due to a lack of fresh leads, with investors awaiting US job data, dealers said. The European currency may extend its adjustment, if it fails to hold onto the 0.8750 usd level today, but its downside is expected to remain solid, they said. "We can continue to recommend 'a buy on dip' stance for the euro, unless it slips to below the 0.86 usd level," Moriyasu said.