By Mariko Hayashibara
TOKYO, March 20 - The dollar edged ahead on the yen on Wednesday, supported by growing talk of Japanese fund flows and as officials here offered a less-than-threatening reaction to its recent surge. The dollar was also helped by a two percent loss in Tokyo's Nikkei share average , though trading thinned ahead of a public holiday in Japan on Thursday. Japan's top financial diplomat, Haruhiko Kuroda, told reporters in the morning that he wanted stable currency moves that reflected economic fundamentals. Since this came coupled with a line that the U.S. economy was recovering rapidly, many took it as a hint he was not unhappy with the dollar's recent surge from a three-month low of 126.36 yen.
Talk also grew that Japanese institutional investors, which were said to have completed fund repatriation for the year-end on March 31, are ready to pour fresh money abroad soon. Likewise, Japanese public pension funds were rumoured to place huge dollar-buying orders next week for their planned foreign asset purchase for the next fiscal year. But the greenback was denied a strong rally, frustrated by sales from exporters and U.S. funds along with option-linked defence around 132.50 yen. "The dollar looks supported, although some position-adjusting is kicking in after it gained very quickly recently," said a trader at a Japanese bank. The Bank of Japan on Wednesday decided to keep its monetary policy unchanged, as widely expected by financial markets. The BOJ finalised an earlier decision to expand the range of eligible collateral used in money market operations, giving banks and other operators more leeway to take up the extra funding promised by the BOJ if it proves necessary. The outcome was largely expected and had little impact on the market.
The dollar stood at 132.14/19 yen as of 0649 GMT, having risen to a high of 132.42 yen The euro was easier on the yen at 116.34/46 from 116.51 in late New York, off a three-week high of 116.66 yen overnight. FED IMPACT?
The dollar's initial gain was also helped as the Federal Reserve held interest rates steady while expressing a more bullish view on the economy. "The decision signals confidence in the economy, but crucially avoids damaging asset prices, thereby continuing to encourage foreign inflows that should help support the current account deficit and the dollar," UBS Warburg said in a research note. But others said future interest rate hikes could hurt the U.S. Treasury market, limiting fund flows to the U.S. assets, thus not necessarily becoming a dollar-supportive factor. The market reacted little to data showing Japan's all-industries index -- a useful guide to gross domestic product -- fell 0.9 percent in January while the services sector index dropped 1.1 percent.
The figure was weaker than expected although some pullback was seen after two months of gains. Separate data showed the trade surplus shrank in February year-on-year, but the better-than-expected figure underscored the view that a strong U.S. recovery could help Japan crawl back to health.