By Robin Shepherd
LONDON, Nov 12 - The dollar rose a quarter of a percent against the yen on Monday after a clear reminder from a top Japanese official that monetary authorities remained ready to intervene to prevent any significant yen appreciation.
Generally, currency markets shrugged off news of more victories for U.S. backed, anti-Taliban forces in northern Afghanistan with traders expecting a sluggish day in the absence of any major data from either side of the Atlantic and as U.S. markets pause for a national holiday.
The latest intervention warnings out of Japan came from the country's top financial diplomat Haruhiko Kuroda who told during a visit to Australia that Japan would intervene if exchange rates "deviated from fundamentals".
"The renewed talk of intervention by Kuroda has helped dollar/yen a little," said Audrey Childe-Freeman at CIBC World Markets.
Although the Bank of Japan would be the main focus through the day, the U.S. holiday and the dearth of data made major movements in the foreign exchange markets unlikely, she added.
By 0830 GMT, the dollar was trading at 120.65 yen . The U.S. currency was all but unchanged, and expected to remain that way, at around $0.8936 to the euro .
JAPAN IN FOCUS
Analysts said currency markets were taking threats of Japanese intervention seriously because of repeated bouts of Bank of Japan intervention in September, in which it used more than $27 billion to halt the yen rise.
The Japanese government is concerned that an already weak economy could be hit further if a strengthening yen were to damage export prospects.
Some in the market said they would be very wary of intervention if the dollar dropped back below 120 yen, although that looked unlikely in the short term.
"Kuroda was reminding the market that Japan would intervene once the dollar goes below 120," said Tony Norfield, head of foreign exchange research at ABN Amro.
"But there is a bit of upside for the dollar now and I would expect the dollar to target 121 to 121.50 in the next couple of days," he added.
Kuroda himself did not specify any particular exchange rate at which the monetary authorities would step in.
The yen was little affected by a modest upward revision to Japan's gross domestic product figures for the April-June quarter.
The government said the Japanese economy shrank 0.7 percent in that quarter, compared with an earlier estimate of a 0.8 percent contraction. Analysts said the events of September 11 had made it more difficult to assess the direction of the economy from past statistics.
"The market's been basically disregarding a lot of the economic news, because we had an asymmetric event...the economic news doesn't really tell you where the economy's going from here," said Ken Landon, currency strategist at Deutsche Bank.
Forces of the Afghan opposition Northern Alliance were reported as saying on Monday they had seized Kunduz, the last Taliban holdout in the north of Afghanistan. Anti-Taliban forces took key strategic towns in the north of the country over the weekend. Currency markets were not noticably affected by the news.