By Robin Shepherd
LONDON, Jan 9 - The yen recovered ground after hitting fresh three year lows against the dollar on Wednesday and was little changed from the New York close with some analysts saying the yen had been slightly oversold.
Foreign exchange markets generally were conspicuously flat with the euro all but unmoved against the dollar. The Swedish crown was trading at intraday highs after reports a referendum may be held next year on joining the euro zone.
The yen, however, remained the main focus attention having fallen past 133 to the dollar for the first time in more than three years in Asian trading. Despite paring losses, analysts said the currency would probably fall back again.
"The dollar fell from the high because the market thought the move might be too sharp. But there has been no indication from policymakers that Japan will disagree with a weaker yen so it will go back above there soon," said Lee Ferridge, head of global currency strategy at Rabobank.
The dollar peaked at 133.37 but was trading at around 132.30 by 0840 GMT. The yen picked up a little after Japan's government spokesman Yasuo Fukuda said the fall of the yen had been a little too rapid, although he also said that current yen levels seemed to be within an acceptable range. The euro was trading at around $0.8915 .
EYES ON JAPANESE OFFICIALS
Japan's top financial diplomat Haruhiko Kuroda said overnight that the country's foreign exchange policy remained unchanged.
Earlier, Economics Minister Heizo Takenaka said he had not discussed foreign exchange levels in his meetings this week with senior U.S. officials. He also reiterated that recent moves were not far out of line with fundamentals.
Washington's silence on the 10 percent fall in the yen over the past two months gave dealers the distinct impression the United States is prepared to tolerate a weaker Japanese currency.
"The fact that we did not get any comments from U.S. officials during Takenaka's visit was a reassurance that drove the yen lower," said a Japanese bank dealer.
With no yen-supportive news emerging from Takenaka's visit to the United States, focus turned to Prime Minister Junichiro Koizumi's relationship-building tour of southeast Asia.
Dealers and analysts were surprised that officials have continued to express satisfaction with yen weakness ahead of the tour, even though the currency's slide has sparked protests from Korean officials and the state-run Chinese media.
SWEDISH REFERENDUM?
The Swedish daily Dagens Nyheter reported on Wednesday that Prime Minister Goran Persson had said Sweden could hold a referendum in March next year on whether to join the European Union's single currency and, if the outcome were 'yes', enter the bloc in January 2005.
The timetable for any referendum is closely being watched by financial analysts, who regard the Swedish crown as undervalued against the euro and say it must strengthen before it can be linked to it.
On Wednesday it was quoted at around 9.2620 to the euro, a high for the session. Persson told the Dagens Nyheter he would not speculate on the crown's pegging rate to the euro.
Recent polls suggest that public opinion is gradually shifting in favour of euro entry although many Swedes remain undecided.
Elsewhere in Europe, the German government has cut its 2002 growth forecast to around 0.75 percent from its earlier prediction of around 1.25 percent, a government source said on Wednesday.
Finance Minister Hans Eichel said late last year that growth in 2002 could be as low as 0.75 percent according to one risk scenario.
Another unnamed source told that German adjusted unemployment had risen by 6,000 in December. The source added that the November figure had been revised up to a rise of 19,000 from 17,000.