TOKYO (AFX-ASIA) - The yen eased midmorning on the disappointing headline industrial output figures, with the market ignoring an improvemnet in inventory positions and an upgrade in the trade ministry's assessment, dealers said. The ministry said it upgraded its April assessment of industrial output after the figure came in at a rise of 0.2 pct month-on-month, saying production "appears to be rebounding".
The ministry previously said output was "stagnating at low levels". The upgrade came despite the disappointing headline number, which compared with a market consensus for a rise of 0.9 pct.
"I thought the dollar would test lower but unfortunately the industrial output figure was relatively weaker than expectations," said Hideki Naito, managing analyst at Standard and Poor's MMS.
The dollar had pushed below the 124.50 yen level before the announcement. "If the euro extends its gain towards 93 (cents), it may push the yen higher but we have not seen flow-through of euro buying in Asia," Naito added. The euro/dollar faces resistance at 0.9330, the high reached in September. Investors have few incentives to drive the yen higher given a decline in local equities, concerns over Bank of Japan intervention and expectations options traders will defend positions set in a band around current levels. "Of course the market remains cautious over BoJ intervention. When the dollar/yen starts to creep lower below the overnight low of 124.31, then we have to be careful," Naito said.
"The Nikkei continues to drift lower, following New York stocks, so there's no strong reason to purchase the yen from here. There's some option-range play set at 123.50-125.50 yen," he added.
The dollar remains under pressure after US markets sold off on the latest US data, he said.
"The consumer confidence figues was just data-trading. There was a rumour of a further recovery but the number was only reasonable and the Dow lost ground," Naito said.
Meanwhile, Moody's is expected to downgrade Japan's sovereign debt rating by up to two notches this week, despite recent complaints about it methodology from the Ministry of Finance.
"There is some market talk over Moody's announcing the downgrade but one thing is ... the MoF complained, so right now I think Moody's are writing another text for the MoF and the timing may be delayed," Naito said.