TOKYO, Oct 1 - The dollar was softer on Wednesday on growing concerns about the U.S. economy but was underpinned against the yen by wariness of intervention by the Japanese authorities, who had stepped into the market a day earlier. Currencies showed little immediate reaction to the Bank of Japan's closely watched "tankan" business survey as its upbeat figures had already been factored into the market, where the dollar fell to three-year lows against the yen on Tuesday. The greenback was hovering about one percent above those troughs but was gradually losing ground it had recovered on the back of Japan's yen-selling intervention late on Tuesday. "Tankan was very closely watched, but the figures were within expectations," said Mitsuru Sahara, vice president of forex dealing group at UFJ Bank.
"The market's focus is now probably more on the intervention story. The BOJ intervention through the New York Fed is seen as a sign that the U.S. is sympathetic to a certain extent to Japan's situation and that's prompting people to take profit." At 0240 GMT, the dollar stood at around 111.20 yen , down from Tuesday's late New York levels of about 111.50. It had fallen on Tuesday to three-year lows around 110.10 yen before spiking up to around 112 yen on Japan's intervention through the Federal Reserve Bank of New York. The euro was also firmer against the dollar, which was broadly softer after weak readings in the Chicago-area purchasing managers survey and consumer confidence numbers. The single European currency was up about a quarter cent at around $1.1690 , although it was still below three-month highs above $1.1735 set on Tuesday.
JAWBONING CONTINUES
Japanese officials, worried that the yen's latest surge could jeopardise the country's export-driven economic recovery, kept up their rhetoric. Finance Minister Sadakazu Tanigaki said Japan was determined to stem irregular movements in the foreign exchange market. "We will take decisive action in an appropriate manner to stem irregular movements," he told a parliamentary committee. He added that the yen had risen too far, given Japan's still fragile economy. "If exchange rates reflect fundamentals and move stably, we do not need to act. Granted, there have been good economic indicators out of Japan, but the U.S. economy is also showing a strong recovery. As such, the conditions are not there for the yen to advance further." Vice Finance Minister for International Affairs Zembei Mizoguchi said Tuesday's intervention was aimed at correcting an overshooting in the yen exchange rate. "Stability is important and overshooting is inappropriate. We intervened from that standpoint," he told reporters. "We are considering steps from various points of view, and intervening through overseas central banks is one option."
The tankan report, despite improvements, underlined the officials' concern about the recent yen strength. It showed that Japan's big manufacturers were basing their business projections on an assumption, on average, that the dollar would average 117.99 yen through the business year ending March 2004. "The projected exchange rate suggests the recent yen appreciation has not been factored in," said Azusa Kato, an economist at BNP Paribas. "If the yen keeps strengthening, it could affect the business outlook in the next tankan report." The survey's key diffusion index of sentiment for large manufacturers improved to plus 1 from minus 5 three months earlier, rising above the neutral zero mark for the first time in nearly three years.//