The dollar/yen was firmer late morning on short-covering after overnight losses, with only a short-lived reaction to the Bank of Japan's release of its September Tankan survey of business conditions, dealers said. The market was thin with Hong Kong markets closed today. "The December (Tankan forecast) figure was still at minus 11 so they are not so positive on the outlook," said Hideki Naito, managing analyst at MMS.
"Many expected the recovery would be short-lived. By the end of the year, we will have peaked out," he said. Nevertheless, the currency market was dominated by short-term speculators.
"The market remains relatively thin maybe with the Chinese holiday. When spec-funds move into the market they can easily move the dollar/yen 20-30 points," Naito said. "Even after the Tankan, the move was largely position adjustments as there had been short-covering of dollar/yen and short-term players were profit-taking after buying at low 121 levels overnight," he said.
The dollar fell to around the 121.70 yen level before recovering and trading around 122.00. Investors also remain uncertain over the impact of a possible acceleration in resolution of bank bad loans, with the appointment yesterday of reform-minded Heizo Takenaka as head of the Financial Services Agency.
The government may try to reduce the deflationary impact of increased bankruptcies and unemployment as a result of the resolution of the bank bad loan problem by pushing for increased monetary measures, or a depreciation of the yen. Finance Minister Masajuro Shiokawa said this morning that plans to dramatically accelerate resolution of the non-performing loan crisis could lead to a "disastrous economic situation", with bankruptcies and unemployment surging.
"In the medium-term its positive but in the short-term, it's difficult to say because of further (monetary) easing and Japanese officials still prefer the bearish yen," Naito said. "The next focus is US unemployment data and deflation measures by Japanese officials in late October. We may be trading in a range of 120-124 yen for the next month.
"We are carefully waiting for the Japanese investors, to see whether they will resume foreign investments, but I doubt it," he said. "For the first six months Japanese bought a decent size of US Treasuries so I don't think they are so eager to now."//www.ananova.com