LONDON, Sept 1 - The yen held near recent three-month highs on the dollar on Monday, drawing support from last week's news that Japan had not intervened in the currency markets in August to sell yen, contrary to expectations. Yen trading dominated market activity with U.S. investors on holiday for Labour Day, but attention was likely to turn towards the euro at 0800 GMT when the August purchasing managers' survey (PMI) for the euro zone was due.
"A lot of people are paying attention to what is happening in Japan. Dollar/yen still looks very heavy and on balance it looks like it is still going to go down unless there is massive intervention," said Paul Mackel, currency strategist at ABN Amro in London. "Some may also look at the PMI and if the balance is higher than expected it could improve the short-term euro/dollar outlook," he said. The euro zone PMI survey is seen improving to a 49.0 reading in August versus 48.0 in the previous month. At 0726 GMT, the yen traded at up a fifth of a percent on the day against the dollar at 116.65 , but still below the three-month high of 116.12 yen. The Japanese currency was also slightly up on the euro at 128.16 .
Meanwhile, the euro held steady on the dollar at $1.0985 , a touch below an earlier one-week high. Markets were also closely watching news on U.S. Treasury Secretary John Snow who was in Japan on Monday, eager to hear his views on intervention. A Japanese business lobby said Snow had told it that a further rise in the U.S. current account would weigh on the dollar. WHAT ABOUT INTERVENTION? The yen has been rising both against the dollar and the euro since mid-August due to growing yen demand from foreign investors wanting to buy Japan stocks. Despite that, Japan conducted no yen-selling intervention in the month to August 27 -- a stunning move after Japan had aggressively intervened to sap the export-damaging yen's strength, selling a record nine trillion yen ($77 billion) so far this year.
This revelation stoked speculation that it may have refrained from intervention ahead of Monday talks between top Japanese officials and Snow, who has said that intervention in general is not a good policy. Still, many traders remained wary that Japanese officials may have only delayed coming to the markets, and were reluctant to bid the yen too high, as a senior Japanese official said on Monday that Japan would intervene if necessary. Japan's forex chief, Zembei Mizoguchi, said that recent movements in the foreign exchange market had been speculative and warned of action if moves turned volatile. "It's not appropriate for the market to be volatile or to overshoot," Mizoguchi, vice finance minister for international affairs, told reporters. Some dealers said Japan may have intervened after August 27, particularly on Friday when the dollar rebounded from its three-month low of 116.15 yen.
"People are selling the dollar (for the yen) very timidly," said Satoshi Tokuda, forex manger at Sumitomo Corp. The Nikkei average <.N225> was up 2.73 percent at 10,625.47 by late afternoon, hitting a new 13-month intraday high. ($1=116.68 yen) //