By Hideyuki Sano
TOKYO, Oct 12 - The dollar was well-supported near its post-September 11 high against the yen on Friday, holding on to most of the substantial gains it made offshore as pessimism over the U.S.-led attacks on Afghanistan began to dissipate.
The greenback also received tail wind after Japanese Finance Minister Masajuro Shiokawa said he told Prime Minister Junichiro Koizumi that it might be better if the yen was slightly weaker than current levels. The market barely budged when the Bank of Japan decided to maintain its monetary policy as expected at its board meeting.
In mid-afternoon, the greenback was changing hands at 121.34/39 yen , flat from late New York levels of 121.34, and near 121.69, its highest level since the September 11 attacks on the United States, hit offshore on Thursday.
It was about a full yen higher than its levels 24 hours earlier and substantially above the trough of 115.76 it reached on September 20 in the aftermath of those attacks.
Dealers pointed to relatively healthy corporate earnings reports supporting U.S. stocks and in turn the dollar. Weekly jobless claims data was also better than expected, they said.
In the U.S. stock market, the Nasdaq composite index <.IXIC> on Thursday also recovered its pre-September 11 levels.
Other currencies remained weak against the buoyant dollar, with the euro at $0.9017/22 , flat with late New York, but almost a cent lower than its level a day earlier. Against the yen, the single currency was little changed at 109.46/54 .
In one of the clearest signs that concerns over the consequences of U.S. strikes on Afghanistan are starting to abate, the greenback was firm against the safe-haven Swiss franc at 1.6460 franc , compared with 1.6260 a day earlier.
STILL VIGILANT
In the afternoon, Finance Minister Shiokawa reminded the market that the Japanese government was ready to intervene to lift the dollar against the yen, should it fall again.
"The Japanese government bought a large amount of dollars equivalent to several months' worth of Japan's current account surplus," said Naoto Ohnuma, a foreign exchange manager at Mitsubishi Corp.
"The dollar is unlikely to fall for now," he said.
But several analysts expressed doubts about the dollar's ability to maintain its strength. "As a house, we see a lot more downside for the U.S. economy," said James Malcolm, economist at JP Morgan. Ohnuma of Mitsubishi said most market players were likely to be risk-averse for a while amid worries about global security.
The FBI on Thursday warned there could be another terror attack in the next few days and U.S. President George W. Bush later said the warning may not be the last. Ohnuma said currency trading is likely to lack energy, regardless of direction.
"In a situation like today's, you cannot expect private capital to move from one place to another actively. That means we are not going to see a boom," he said.
"The political and military outlook is so uncertain that investors simply cannot feel excited about putting their money in anything," Ohnuma said.
Capital flows data released by the Finance Ministry on Friday morning showed Japanese investors scooped up a phenomenal net 1.2410 trillion yen ($10.22 billion) in foreign bonds in the first week of October -- the largest purchase of foreign bonds since the ministry introduced weekly data in April.
But analysts say such purchases are likely to be fully hedged, so they will have little effect on currency levels, adding that the figure was bloated partly by fresh investment at the start of the financial half year and was set to dwindle.