12 August 2003, 10:21  Dollar bounced back after faltering on Japan data

TOKYO, Aug 12 - The dollar bounced back from early lows in Asia on Tuesday, recovering from losses made after stronger-than-expected Japanese growth figures, with potential sellers worrying Japan could intervene to hold down the yen. The yen rose to a session high of 118.38 yen against the dollar after Japan said its April-June GDP rose 0.6 percent from the previous quarter or an annualised 2.3 percent, well above poll forecasts of 0.2 percent for the quarter and 0.6 percent annualised. But the yen shied away from a four-week high of 118.19 yen posted in New York on Monday amid caution over possible Japanese intervention, dealers said.
Dealers suspect Japan may have stepped in at slightly below 118.50 per dollar and around Monday's low. The Japanese authorities are thought to have intervened between 118 and 119 yen in July, when they sold more than 2.0 trillion yen ($16.87 billion) to stem the yen's rise. "The dollar briefly fell against the yen on strong headline figures in Japanese GDP, but the market became nervous about selling heavily near 118 yen due to wariness over intervention," said a senior trader at a Canadian bank in Tokyo. "The dollar could fall again, but it shouldn't fall sharply because the underlying trend still looks bullish. The market will look for a fresh trend from the statement after the FOMC (Federal Open Market Committee) meeting," the trader said.
The Federal Reserve, due to meet later in the day, is widely expected to leave the key U.S. interest rate at 1.00 percent. At 0527 GMT the dollar was quoted at 118.71/76 yen , barely changed from 118.66/74 yen late on Monday in New York. The greenback edged up on option-linked buying from around 118.50 yen and unwinding of short positions built in early trade shortly after the strong Japanese GDP data. The euro was little changed at $1.1357/60 from the New York close of $1.1357/63. The single currency edged up on the yen, but faced stiff resistance around 135 yen. It was 134.82/91 yen against Monday's 134.68/76.
JAPANESE REPATRIATION
In the near term, the dollar is expected to be held down by speculation that Japanese investors could sell it heavily after collecting coupon payments and redemptions on U.S. Treasuries this week. In addition, it is vulnerable to technical selling after failing to build on recent highs. Shogo Nagaya, a manager at Nomura Trust and Banking, said there were considerable long dollar positions to unwind after the dollar failed to break through a recent high of 120.60 yen. "The market is basically in a phase of adjusting positions after failing to break the high. Expectations of Japanese repatriation are also weighing on the dollar," Nagaya said. But dealers were unwilling to bid the yen up too strongly after the GDP data, unconvinced that growth would pick up quickly, and with the GDP deflator of minus 2.1 percent showing that deflation remains a big problem.
The market was eager to hear what Fed officials would have to say after the FOMC meeting as hopes of an economic recovery in the U.S. grow. On Monday, the Blue Chip Economic Indicators' poll showed private economists had nudged up forecasts for U.S. growth. Estimates called for third-quarter U.S. GDP to grow at an annual rate of 3.7 percent, up from 3.6 percent predicted in July and from 2.4 percent in the second quarter.//

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