TOKYO (AFX-ASIA) - The dollar turned top-heavy in midafternoon trading due to the receding impact of dollar-buying intervention carried out this morning by the Bank of Japan on behalf of the Ministry of Finance, dealers said.
The dollar was pushed to above the 118 yen level following the intervention, which took place when the the unit neared the 117 yen level.
But the US currency failed to extend its gains above the 118 yen level due to a lack of follow-through buying amid growing concerns over the future trend of the US economy and a US retaliation following terrorist attacks on New York and Washington, dealers said. Canadian Imperial Bank for Commerce foreign exchange director Yasushi Takeishi said that with negative sentiment towards the US currency remaining intact despite today's intervention, the dollar may re-test the 117 yen level anytime soon.
"Solo intervention by the BoJ will not be able to reverse the downtrend of the dollar," Takeishi said, adding: "unless joint intervention by the Japanese and US authorities is carried out, it would not be a surprise if the dollar falls to the mid-116 yen level." Underlying worries over the smooth settlement of the dollar also pressured the topside of the dollar ahead of the account book close for the first half to September, dealers said.
"It seems that Japanese players are becoming increasingly reluctant to trade in the dollar beyond their minimum requirements due to concerns over the currency's liquidity problem," Toyo Trust and Banking Co Ltd customer dealer Issaku Taguchi said.
"This is also pressuring the topside of the dollar."
Finance Minister Masajuro Shiokawa said his ministry aimed to boost both the level of the dollar/yen and the liquidity of the yen -- which can be viewed as a form of monetary easing -- through today's currency market intervention.
The rebound in the Nikkei 225 index to above the 10,000 point level also bolstered demand for the yen, dealers said. The euro was easier against the dollar on profit-taking following the recent rebound and the peaking of flight-to-safety asset flow, dealers said.
"It would not be a surprise if the euro tests the 0.94 usd level, just from chart analysis, but, in reality, it will take some time before the European currency reaches such level," Taguchi said.