12 December 2001, 08:53 Forex - Yen rangebound in midafternoon Tokyo as initial rise on Tankan fades
TOKYO (AFX-ASIA) - The yen was rangebound against the dollar in
midafternoon trade after an initial rise triggered by the release of a
better-than-expected Tankan survey lost momentum, dealers said.
The large manufacturers diffusion index in the latest quarterly
survey came in at minus 38, with the large non-manufacturers DI at
minus 22.
Private economists had forecast that the large manufacturers DI
would come in at a consensus minus 43, with the large non-manufacturers
DI seen at minus 24.
The Tankan survey, however, disappointed traders who built up long
positions on the dollar yesterday following comments by Bank of Japan
policy board member Noboyuki Nakahara, dealers said.
Nakahara said the central bank should launch foreign bond purchases
of 200 bln yen a month, as part of 'unorthodox' monetary operations
aimed at staving off deflationary pressure.
Deutsche Securities senior economist Chotaro Morita said the latest
Tankan simply confirmed a "steady deterioration" of the economy, rather
than underscoring the presence of a deflation spiral.
"The fact that the DIs did not deteriorate so sharply ... may
prevent the BoJ, which is increasingly becoming bearish about the
economy, from immediately stepping into an 'unorthodox' monetary
operation approach," he said.
The BoJ is scheduled to hold a regular policy board meeting next
week.
Bank of Yokohama foreign exchange assistant manager Hiroshi
Ishihara, however, said economic factors are not likely to drive the
dollar/yen rate sharply towards either direction, adding that "the
market will pay closer attention to political moves."
"In particular, the market is now watching closely if there will be
any political decision on the use of public funds in the
recapitalisation of banks," he said.
Reported comments from LDP's policy research chief Taro Aso that
the economy may fall into a deflationary spiral in February or March
failed to have any material impact on forex trades today, dealers said.
"The dollar may need to undergo a mild correction due to the
accumulation of sizeable long positions in the near-term, but it has
not lost the upward bias and may reach 128 yen before the end of this
year," Ishihara said.
The euro was higher against the yen due to active buying after the
Tankan report found a sharp reduction in year to March 2002 capital
spending plans, dealers said.
According to the Tankan, large manufacturers covered by the survey
now plan to cut year to March capital expenditure by a combined 4.4
pct, a major turnaround from the 2.8 pct increase shown in the
September survey.
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