LONDON, Feb 26 - The dollar held above a near six-month low against the yen on Wednesday, helped by a growing conviction that Japanese authorities would intervene to buy dollars to curb any export-damaging strength in the yen. Comments from top Japanese officials warning that recent movements in the market had been rapid and inappropriate came on top of unconfirmed talk from market sources that the Bank of Japan had bought dollars for yen surreptitiously on Tuesday, at around 117.00-20 yen. "The attention is on the yen," said Rob Hayward, senior currency strategist at ABN Amro.
"There are stories around that there is covert intervention around 117 -- maybe it's true, maybe it's not but it wouldn't be surprising, if intervention is not there, that it would come at levels below that."
By 1115 GMT the dollar was up 0.13 percent versus the yen on the day at 117.40 yen. It was stable on the euro at $1.0754, sterling at $1.5755 and the Swiss franc at 1.3580. But trading ranges were tight and traders said the greenback and the euro were stuck in tug-of-war trading as markets looked for news from Iraq and economic performance in the U.S. and the euro zone. The euro meanwhile was also up 0.1 percent on the yen at 126.27 and barely changed on the day against the pound and the Swiss franc, holding near a one-month low on the franc.
JAPANESE THREATS
Market sources said the BOJ, which acts as the Finance Ministry's agent, was detected stepping in to buy dollars at around 117.00-117.20 yen in late Tuesday Asian trade and during post-Asian trade. Japan's top financial diplomat, Zembei Mizoguchi, would not comment on the reports but said recent movements in the market had been rapid and inappropriate, and the ministry was watching the market closely. Separately, a senior ministry official said the Group of Seven (G7) nations had agreed at a weekend meeting to cooperate if there were rapid fluctuations in the currency market, which included concerted intervention.
The comments came a day after Finance Minister Masajuro Shiokawa said G7 ministers had agreed that foreign exchange rates should be determined by the market, which sent the dollar down to a near six-month low of 117.00 yen in New York. Japanese officials worry a strong yen will hurt exports, the main pillar of the nation's faltering economic recovery. Bank of Japan data is due on Friday and traders are waiting to see if the figures confirm the central bank has been in the market since Japan revealed in late January it had quietly bought $6 billion that month to stem the yen's rise.
EUROPEAN ECONOMIES FLAG
Meanwhile, data from the euro zone underscored deep-rooted problems there, but the euro took the figures in its stride. Germany, the region's largest economy, stagnated in the final quarter of 2002. Year-on-year, German gross domestic product (GDP) grew 0.5 percent in Q4 and just 0.2 percent in all of 2002, although analysts said the numbers allayed fears of imminent recession. But Spanish GDP data showed the economy growing two percent in 2002, its lowest rate since 1993. "All these numbers are old so they should not have an impact on markets," said Peter Von Maydell, senior currency strategist at Credit Suisse First Boston in London.
"But there is a door wide open for the ECB to cut rates at its next meeting. Everyone's growth is getting worse," he said. A forward-looking indicator for Italian industrial production showed a reading in negative territory in May and failed to project a recovery before the second half of 2003. issues its regular poll of euro zone interest rate expectations at 1200 GMT. A snap poll of economists on Monday showed 23 out of 35 respondents expecting a rate cut on March 6. Euro zone money markets are pricing in more than a 50 percent chance of a quarter point cut in the key refinancing rate, currently at 2.75 percent, in March.
The Swiss National Bank also warned it was watching the rise in the safe-haven franc with concern given the weakness of the Swiss economy, describing the gain as "especially unwelcome" and raising expectations it could cut rates soon.
WAR ANXIETIES EVER PRESENT
An unexpected fall in U.S. consumer confidence on Tuesday helped cap the dollar's progress as chances of a U.S. attack on Iraq and spiking energy prices hurt consumer sentiment. Fear of war simmered, with U.S. President George W. Bush on Tuesday emphasising his intention to bypass the United Nations and attack Iraq if necessary. But some in the market took heart from news that United Nations weapons inspectors had received a little more cooperation from Iraq in disclosing its armoury.
Markets, wary of war costs to the U.S. budget deficit, also took note of a Wall Street Journal report that the Bush administration is preparing supplementary spending requests totalling as much as $95 billion for war with Iraq. "A lot of this has already been priced in but now there is a benchmark number," said Michael Klawitter, senior currency strategist at Westdeutsche Landesbank in London//www.forbes.com