NEW YORK, Sept 30 - The dollar slid to three-year lows versus the yen on Tuesday as optimism grew about Japan's economic recovery, and talk resurfaced the Bank of Japan had resumed yen-weakening intervention. The greenback also came under broad downward pressure, hitting three-month lows against the euro and Swiss franc in Europe on concerns about the shape of the U.S. recovery ahead of key U.S. consumer and manufacturing data. U.S. consumer confidence data for September, due at 1400 GMT, is expected to come in at 81.8 according to consensus forecasts, compared with 81.3 in August. The Chicago PMI is expected to come in at 57.0 in September.
"Negative dollar sentiment appears to dominate all," said Anne Parker Mills, senior U.S. economist with Brown Brothers Harriman in New York. Despite widespread suspicion among traders that the Bank of Japan intervened in order to weaken the yen earlier Tuesday, so far those efforts appear not to have been very effective, Mills added. Early morning in New York, the euro was up 0.8 percent to $1.1683. Against the yen , the dollar was down 0.2 percent to 110.54 yen. Against the Swiss franc the dollar was at 1.3188 francs, down 0.5 percent on the day. The pound was up 0.3 percent to $1.6703. Earlier in the global day, the dollar had fallen to session lows at 110.26 yen even as talk revived that Japanese authorities had resumed selling yen to curb its export-damaging strength 10 days after the Group of Seven nations called for currency flexibility. Ministry of Finance data showed Japan spent 4.457 trillion yen in currency intervention between August 28-September 26, after conducting no intervention in the previous month. The September total was a record monthly amount. Traders were surprised not only by the huge scale of these yen-weakening interventions, doubling some analysts forecasts, but also that these have had such a modest effect on checking the appreciation of the yen. "It seems like they are throwing a lot of money in there and it is not doing anything any more," said Lauren Germain, currency strategist with Banc of America Securities in New York. Nevertheless, traders are increasingly nervous about pushing the dollar down to the psychologically important 110 yen level, especially after traders suspected that the BoJ had conducted yen-selling intervention late Tuesday afternoon in Tokyo, pushing the dollar up from 110.35 yen to 110.90 yen.
Japan has enjoyed massive foreign inflows in the past few months thanks to strong signs of a recovery in the world's second biggest economy. Expectations the Bank of Japan's quarterly "tankan" corporate survey on Wednesday would show improving business conditions added to this impression. "Dollar selling is gathering momentum, breaking key support," said Mary Davis, global foreign exchange strategist at CSFB. "Japan's economy is improving but the yen's appreciation has huge risks of derailing the recovery. We think they (the BOJ) were in the market...But with the G7 just 10 days ago, Japan might not want to go in to sell unlimited amounts of yen." The U.S. currency has been reeling ever since the Group of Seven major industrialised nations called for more flexible currency rates on September 20, a move interpreted as a call for Asian nations to stop propping up the dollar for the sake of their exports. Although the question of how global policymakers view the speed of the dollar's descent is looming larger, some analysts argue that judging by the relative resilience of dollar-denominated asset markets, the currency's losses are occurring in an orderly fashion so far. "The dollar's decline is relatively orderly. We haven't seen any sign of destabilization in the stock and bond markets. I don't think we're seeing any kind of 'sell US' mentality," said Andrew Delano, currency strategist with IDEAGlobal in New York.//