Hong Kong, July 31 (BridgeNews) - The yen strengthened against the dollar Tuesday morning in Asia on profit-taking/buying of the Japanese currency after it had weakened more than two yen on Monday. The retail fixing-related selling of the greenback and a sharp rise in the Japanese stocks also supported the yen.
The yen rose to as high as 124.76 against the dollar, compared with the New York closing level of 125.07.
The dollar/yen's fall from 125.25 to 124.76 was caused by profit taking on the back of Tokyo fixing related selling, followed by stop-loss selling, as the Nikkei surged 1.9% on Japanese comments hinting at a supplementary budget.
Japan's Minister of State for Fiscal and Economic Policy Heizo Takenaka said a supplementary budget would be possible, if necessary, to implement structural reform.
Japanese Finance Minister Masajuro Shiokawa hinted in an interview with Yomiuri Shimbun that there might be a need for a supplementary budget this fiscal year.
Shiokawa said the government first needed to look at the initial budget and see if an increase in spending was needed. Shiokawa also said he may cut public works spending 10% by squeezing out savings in materials spending and revising the contract bidding method, the Nihon Keizai Shimbun reported.
Japanese shares rallied on short covering, as investors' hopes for the implementation of structural reforms grew after Prime Minister Junichiro Koizumi said he would draw up a concrete timetable for the process in August.
Also encouraging, were official's hints at a supplementary budget. Major gainers included high tech shares following recent steep losses. The Nikkei 225 Stock Average rose 198.96 points, or 1.7%, to 11,778.23. Chairman of the Japan Association of Corporate Executives (Keizai Doyukai), Yotaro Kobayashi, said the yen could naturally weaken under Koizumi in the coming months, the Financial Times reported Tuesday. Japanese economic data had no impact. Unemployment was 4.92% in June, slightly below the 5.0% market expectation. Real spending by wage earners fell 3.3% in the year to June.
In other currency trading, euro/dollar rose from 0.8732 to 0.8758 on buying from European players, which triggered stops above the 0.8750 level.
Dealers also saw some euro/sterling buying and the cross rallied from 0.6126 to 0.6142, although sterling/dollar also firmed from 1.4260 to 1.4284, suggesting that the euro/dollar strength was partly a dollar event.
U.K. national output data for the quarter to June will make particularly gloomy reading at the Bank of England's Monetary Policy Committee meeting that will start Wednesday, the Financial Times said in its editorial.