TOKYO (AFX-ASIA) - The dollar was slightly stronger against the yen in midafternoon as investors accelerated their moves to cover short positions on concerns over possible intervention by the Japanese government, dealers said.
"The market here was concerned about a possible intervention as Ministry of Finance officials repeated this morning their unwillingness to see the dollar fall below 120 yen, leading to short-covering of the dollar," Mitsubishi Trust forex manager Noboru Hayakawa said. A senior Ministry of Finance official told AFX-ASIA this morning that the ministry remains concerned the recent decline in the dollar was too fast and not driven by fundamental factors.
"Of course, we will keep watching the forex moves going forward and take steps if needed," said the official, who requested anonymity. "Over the last two or three days until yesterday, the dollar's fall was not in line with fundamentals and was too fast," the official said.
"The dollar/yen's recent declines may be a short-term blip," the official said.
However, Mitsubishi Trust's Hayakawa said expected dollar selling by Japanese exporters, who will return to the market after the "Obon" holiday this week, may continue to put pressure on the dollar. "The greenback may fall below 120 yen again despite continued fears of market intervention because exporters, who are absent from the market during the Obon holiday, will come back to join the market next week," he said.
"Market players will test the resolve of the Bank of Japan to intervene in the market," he added.
Meanwhile, the euro took a breather after its sharp gains. "The euro is top heavy because it has risen to levels against both the yen and dollar that most players had earlier targeted," Hayakawa said.