By Yumi Kuramitsu
Tokyo, Sept. 3 (BridgeNews) - The U.S. dollar remained heavy against the yen in quiet Asian trade Monday, but the market was reluctant to test the further downside amid fears of possible Bank of Japan intervention. Euro/yen selling weighed on the dollar/yen, but both pairs were confined to narrow trading ranges as trading was still thin due to Monday's Labor Day holiday in North America.
Prior to the Tokyo open and through early Tokyo trading, dollar/yen saw a bounce from 118.78 to 119.35 on short covering after Japanese Finance Minister Masajuro Shiokawa told NHK television he plans to seek U.S. cooperation in stemming yen's strength when he meets U.S. Treasury Secretary Paul O'Neill at the APEC meeting this weekend.
However, the pair's rise was capped by euro/yen selling and technical factors. Dealers were also wary of repatriation selling before the close of Japanese financial mid-year on September 30.
Dollar/yen fell further in the afternoon trade to 118.84, led by euro/yen selling from U.S. players and Japanese investors. The cross fell from around 108.25 to 107.97 in the afternoon trade. But the downside was limited and both dollar/yen and euro/yen rebounded as short-covering of dollar/yen emerged near the 118.85. Still, fears of BOJ action remained in the market, which made it harder to test the downside aggressively, according to dealers.
"Basically, sentiment remains bearish for the dollar. But given intervention fears and absence of the New York market today, it was hard to test the dollar/yen's downside aggressively," said Yasuji Yamanaka, deputy general manager of Treasury Division at Nikko Trust and Banking Corp. "However, I believe the market would test the low 118s in the near term and wants to see whether Japan would in fact act in the market or just only provide jawboning," he added.
Ongoing weakness in the Japanese stock markets, which hit new 17-year low on Monday, had little impact on the yen. Japanese shares slumped Monday to a fresh 17-year closing low following a wave of downward revisions of earnings projections, including one by Hitachi Ltd.
Friday's rebound on Wall Street failed to boost the local market, as the session closed at the lowest level of the day amid light trading volume. The Nikkei 225 Stock Average fell 303.83 points, or 2.8% to 10,409.68. The Bank of Japan is expected to implement further monetary easing at its Monetary Policy Meeting scheduled for Sept. 18-19, the Tokyo Shimbun reported Monday.
The newspaper said the BOJ would ease policy to prevent the economy from worsening amid continued weakness in domestic and overseas stock markets. The newspaper said the BOJ may increase the current account balance target to 7-8 trillion yen from 6 trillion yen by increasing the monthly size of its outright buying of long-term government bonds from 600 billion yen. In other currency trading, euro/dollar saw an early fall from 0.9095 to 0.9083 on position squaring after the mixed U.S. economic data released Friday gave some hope of U.S. economic recovery.
The pair saw an extremely narrow trading range of 0.9083 and 0.9095 amid overall lack of interest.