Tokyo, Sept.7 (BridgeNews) - The yen lost ground against the U.S. dollar and euro in cautious trading ahead of the U.S. job report for August. Japan's GDP data for April-June quarter was slightly better than expected. However the downside momentum of the pair and cross waned shortly, as fresh yen selling interest emerged. Dealers said that Japan's GDP data failed to change the negative assessment of the Japanese economic fundamentals.
Dollar/yen fell only slightly after the release of Japan's April-June quarter GDP data. Japan's April-June real GDP was down adjusted 0.8% from Jan-Mar, versus market expectations of a 1.0% fall on quarter. The market initially reacted to the data by selling the pair.
Japan's April-June real gross domestic product fell 0.8% on quarter, or an annualized 3.2%, on a seasonally adjusted basis, after showing a 0.1% increase in the previous quarter, Cabinet Office announced Friday. Housing construction, private capital investment and public capital spending contributed to a drop in the GDP, CO said. The April-June figure was better than economists' average outlook of a 1.0% drop on the quarter. Personal consumption, the largest component of GDP, rose 0.5% on the quarter in April-June. CO said GDP must grow 1.4% on the quarter in each of the remaining three quarters to hit the government's current goal of 1.7% growth. That indicates the government will have to revise down its goal in the near future.
The downside momentum of the dollar/yen soon waned, as many marker participants believe that the GDP data failed to change the assessment of negative economic fundamental development.
Early dollar/yen and euro/yen sellers bought back the pair and cross to push them back to 121.00 and 108.30 respectively. Later in the Asian session, dollar/yen gained further ground, helped by large buying near the 121.00 area.
Middle Eastern concerns were said to be good buyers of the pair in that stage.
For the top side, there is talk of stops above the 121.50 area, which lures dealers to buy the pair. Meanwhile, the market lacked follow-through as many dealers are cautious ahead of the U.S. job data for August. Euro/dollar moved slightly lower, following a lead of a rise in the dollar/yen. However, the downside movement of the cross was checked by euro/yen buying. In addition, the market saw some support in the 0.8920-30 area.
The following news attracted some attention, though they failed to lead to a price action in the currency market.
Japan's Finance Minister Masajuro Shiokawa said that Prime Minister Junichiro Koizumi asked him to prepare the extra budget. Koizumi's instruction followed the release of Japan's GDP for the April-June quarter.
The MOF's Shiokawa said Japan's Apr-Jun GDP data showed the economy was in a serious state, but the government should maintain its fiscal year 2001 bond issue limit at 30 trillion yen. Heizo Takenaka, the state Minister for Economic and Fiscal policy, said, however, that the government could be flexible about the bond limit if the Japanese economy faced spiraling contractions. What the government chooses to do with respect to JGB issues is of key interest as it is an indicator of the government's commitment to fiscal discipline. A looser fiscal policy, involving increased JGB issues, would put upward pressure on JGB yields. Japan's foreign currency and gold reserves in August was up by 4.541 billion to a record high $372.217 billion, the Finance Ministry said Friday.
A MOF official said the August reserves were up on month mainly due to appreciation of the euro against the U.S. dollar and rises in returns from overseas assets such as securities.