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The dollar/yen eased in late morning, despite the sharp fall in the Nikkei 225 index to another intraday 19-year low, with domestic investors taking profit on recent gains in the US currency, dealers said.
The news of an explosion on a French oil tanker off Yemen, with reports suggesting it may have been a terrorist attack, increases risks related to US plans for a war on Iraq but had only limited impact on the dollar, they said.
"Japanese institutional investors are taking profit, so exporters and insurers may cap the dollar/yen's upside," said Koji Fukaya, chief foreign exchange analyst at Bank of Tokyo-Mitsubishi
"Money flows are still for a yen-weak trend but for the moment there's no action from institutional investors. Maybe they remain risk averse," he added.
"Probably, they will continue to buy foreign stocks but it will be a small amount from now. They were buying foreign bonds, especially US Treasuries, but it may be hedged. Gradually, the yen weakness will continue," he said.
"Exporters are waiting ... they have already hedged their risk through to the year-end and now are beginning to hedge for next year's first quarter. The currency's in their target (range) but the hedge volumes are not large," Fukaya said.
The market is watching cautiously developments related to an explosion on a French oil tanker but the implications at present remain unclear.
"Maybe the effect on the market is that it increases the Iraq risk but it's not so simple for the currency market (to interpret) so the dollar is still at 123 yen lows and the euro/dollar at 0.98," Fukaya said.
The apparent electoral gains of Brazilian presidential candidate, Luiz Inacio 'Lula' da Silva, for the Workers Party also had little impact on major crosses, although he is viewed as market unfriendly.
"People were watching it but the market movement is already risk averse and the stocks there are already on a downtrend," Fukaya said.
Looking ahead, the market is waiting for moves from Japanese authorities, with the Bank of Japan due to hold a policy-board meeting on Thursday and Friday, and the finance ministry possibly favouring a weaker yen.
"The BoJ is facing increased pressure from the government side to ease more but they will want to move together with the government to increase credibility ... so they will not do anything," Fukaya said.
"The thinking is it's good for Japan to see yen weakness but still (the ministry) will not want to be seen to manipulate the yen," he added.
Tokyo 10.50 am New York 4.33 pm Friday
Dollar
yen 123.15 down from 123.25
sfr 1.4934 up from 1.4925
Euro
usd 0.9785 down from 0.9791
stg 0.6259 up from 0.6255
yen 120.50 down from 120.67
sfr 1.4612 down from 1.4615
Sterling
usd 1.5632 down from 1.5653
yen 192.50 down from 192.93
sfr 2.3344 down from 2.3366
Australian dollar
usd 0.5470 up from 0.5461
stg 0.3499 up from 0.3489
yen 67.36 up from 67.31
© AFX News