LONDON, Sept 19 - The dollar hovered above the previous session's 2-1/2 year low against the yen on Friday, with traders waiting to see if a weekend meeting of G7 ministers would criticise Asian nations' currency policy. The dollar dropped through key psychological support of 115 yen on Thursday and traders were surprised there was little evidence of official Japanese activity to prevent the yen from strengthening, after months of suspected intervention.
Dealers speculated Japanese authorities may be more reluctant to intervene aggressively in the run-up to the Group of Seven meeting in Dubai, to deflect criticism from G7 counterparts, but debated whether this would last beyond the meeting. "There's a little trepidation about taking the dollar much lower now so dollar/yen is stabilising. There could be another run to take it down but there isn't much momentum by investors," said Paul Mackel, currency strategist at ABN Amro in London. "People will now sit back and see what comes out of the G7. There's talk there could be official comment about currencies in their communique which would draw a lot of attention because they haven't really mentioned currencies for some time." The dollar was trading at 115.00 yen at 1150 GMT, slightly below the New York close, after tumbling to 114.72 on Thursday. The euro also rose to the upper end of recent ranges, trading up half a percent on the day at $1.1315 but below a one-month high set above $1.1340 on Thursday.
The single currency rose a third of a percent to 130.08 , pulling up from the previous day's low of 129.20. WORDS BUT NO ACTION? Britain's Treasury said on Friday there would clearly be a discussion of Asian currencies at the G7 meeting but it didn't think the G7 statement issued at the end of the meeting would set new direction for foreign exchange policy. A Treasury official said he would be surprised if there were structured talks between the G7 and China and that Britain did not wish to see a disorderly adjustment in forex markets. Policymakers in the United States and Europe say Asian nations, including China and Japan, are artificially holding their currencies down to keep their exports competitive. But a G7 source said on Thursday it would be hard for finance ministers to reach common ground on Asian currencies this weekend.
Reports, which could not be confirmed at this stage, said a draft communique stated that G7 countries would continue to monitor exchange rates closely and cooperate as appropriate, and strengthen dialogue between major economic areas to promote smooth adjustment of international imbalances. "If it comes out like that, it won't represent much of a surprise for people," said Ryan Shea, senior international economist at Bank One. Traders in Tokyo said however that any criticism of Japan would make it harder for Tokyo to intervene after the meeting. "It's almost certain Japan's intervention will be criticised at the meeting. Market players are becoming more aware of the risk that it will become more difficult to intervene in forex markets," said Tohru Sasaki, chief forex strategist at JP Morgan Chase in Tokyo.
IMF CONTINUES
The annual meeting of the International Monetary Fund continues in Dubai on Friday. World Bank head James Wolfensohn holds a news conference at 1230 GMT, and IMF managing director Horst Koehler holds a news conference at 1345 GMT. The IMF warned on Thursday the dollar may be in for further weakness and developing Asian economies were better placed than Europe or Japan to bear the brunt of its fall. German producer prices rose at their sharpest annual rate of 2.1 percent in August, data showed on Friday, driven up by a spike in energy prices. European Central Bank Governing Council Member Guy Quaden told the Financial Times Deutschland newspaper there was little reason to lower euro zone interest rates, and even less reason to raise them.//