TOKYO, Feb 20 - The dollar made some ground against the yen on Thursday on the possibility of government intervention after the recent rapid rise in the Japanese unit, but lingering war worries undermined the greenback's advance. The market was also reluctant to take positions actively ahead of a weekend meeting of the Group of Seven (G7) industrialised nations in Paris, dealers said. "War fears continued to put pressure on the dollar," said Hideaki Furumaya, head of the interbank desk at Trust and Custody Services Bank.
"But at the same time, there is no concrete reason to buy the yen strongly, with fears of intervention still very strong in the market," he said. At 0654 GMT, the dollar was trading at 118.92/97 yen compared with 118.70 in late New York trade. It dropped to a three-week low of 118.57 yen on Wednesday. The euro was quoted at $1.0767/70 up slightly from $1.0745 in late New York.
The yen has staged a broad-based rally this week led by bids by Japanese investors converting proceeds from U.S. Treasuries into yen, dealers said. International fund operators were also eagerly collected profits in the euro/yen rate, which intensified the yen's uptrend. The yen has strengthened nearly two percent against the dollar this week, and 2.3 percent against the euro.
INTERVENTION TALK
Dealers said talk of Japanese intervention had swirled in late U.S. market hours over the past two days. Intervention fears have been fuelled by the knowledge that the Japanese government stepped into sell the yen covertly in late January during a period of rapid yen strengthening.
Dealers said one Japanese bank, rumoured to be the institution that the Bank of Japan used to intervene in January, was detected placing bids around 118.60-118.70 yen repeatedly in late New York on Wednesday. Dealers said the approach was similar to January's intervention. Others said they could not tell if the move was related to intervention because it was modest compared with the action in January.
Japan's top financial diplomat, Zembei Mizoguchi, warned the market on Thursday that there was no change in the Finance Ministry's stance that it will act in the currency market if necessary. "We have seen some rapid moves recently. We believe that such rapid ups and downs are not appropriate," the vice finance minister for international affairs told reporters.
FOREX AT G7 MEETING?
Many wonder whether intervention will be discussed at the G7 meeting. Finance Minister Masajuro Shiokawa said earlier this week that the dollar/yen exchange rate would not be a topic when he meets his U.S. counterpart on the sidelines of the G7 talks. But the U.S. Treasury undersecretary for international affairs, John Taylor, said on Wednesday that currencies will likely feature in discussions in meetings of finance ministers, though they would not be the main focus. "I think the United States seems very critical of Japan's latest covert intervention as the U.S. wants transparency and an 'announcement effect' when conducting intervention," said Toru Umemoto, currency strategist at Morgan Stanley Japan.
"And as Japan's covert intervention was conducted before the G7 meeting, I think it's impossible for Japan not to provide the United States with an explanation," he added. "It's very odd that Japan's Finance Ministry is saying the forex issue won't be on the agenda while the U.S. side is saying it will be discussed." Umemoto and others said if the United States makes any negative comment this weekend about Japan's intervention, it would likely push up the yen, possibly to near 115 yen against the dollar.
In early afternoon trade, the yen briefly came under pressure on news that a North Korean MiG-19 fighter jet had intruded across the South-North maritime border. The plane was chased back by South Korean F-5E fighters. The euro was at 128.01/16 yen after climbing as high as 128.22 yen shortly after the news. It stood at 127.55 in late New York on Wednesday. //www.forbes.com