SINGAPORE, Oct 13 - The dollar drifted just above three-year lows against the yen in quiet trade on Monday, with activity limited due to holidays in Japan and the United States. The dollar sank to a fresh three-year low on Friday after the Bank of Japan (BOJ) unexpectedly boosted the amount of money in the financial system by raising the upper end of its target for banks' current accounts held at the central bank. The dollar has fallen six percent against the yen since a meeting of top industrialised nations in late September called for more flexible currency regimes. This was seen by the market as a signal to sell the dollar and buy euros and Asian currencies. Talk that President George W. Bush would press Chinese President Hu Jintao to revalue the yuan when they meet later this month also kept the pressure on the dollar. "I'm still going to be cautious on dollar-yen because there is a lot of downwards momentum there," said Jan Lambregts, head of Asia-Pacific research at Rabobank, Singapore.
"The best we can hope for this week is stabilisation which might be seen by the BOJ as a moment to step in and push dollar-yen higher." Bush and Hu will meet at the Asia Pacific Economic Cooperation meeting in Bangkok on October 20-21 just days after the U.S. president visits Japan where he is also expected to raise the issue of exchange rate manipulation. The dollar was quoted at 108.36 yen in Asian afternoon trade, compared with 108.60 yen in late New York on Friday and a new three-year low of 108.28 yen. The euro stood at $1.1792 , barely changed from New York's late $1.1801. It slipped to 127.78 yen from 128.13. The European currency, which was first traded in January 1999, is still more than a cent off a lifetime high of $1.1932 seen on May 27.
The BOJ's surprise move last week was seen by some in the market as both an attempt to counter yen strength and to spur the world's second-biggest economy, but its impact may be limited. "The history of BOJ action on this is that it's had zero impact on the yen," said Michael Jansen, strategist at National Australia Bank in Sydney. On Sunday Japan's Economics Minister Heizo Takenaka reiterated his view that the main purpose of Tokyo's massive intervention this year was to slow the speed of the yen's moves. This view is seen by markets as implying Tokyo may accept that the yen may rise further in coming months. "I think the yen is going to stay strong." said Patrick Bennett, a strategist with Commerzbank in Singapore. "I am still looking for euro/yen to trade lower. It's below a trendline resistance around 130 so I am looking for that to trade lower."
LOW VOLUME
Volume is seen remaining low on Monday because of the Columbus Day holiday in the United States, with government offices, banks and fixed-income markets closed, and because Japan is shut for the Health Sports Day holiday. One-month options volatility in the euro/dollar is holding near one-year highs, a sign that traders expect the relatively strong moves seen in recent weeks to continue in coming sessions. The market is awaiting a rash of U.S. economic data later this week for fresh direction. The Federal Reserve's Beige Book, an anecdotal narrative describing business conditions around the nation, is due on Wednesday and may offer a more upbeat view of the economy. September retail sales numbers are expected to retreat from August levels. Economists polled by estimated that retail sales slipped 0.1 percent in September after rising 0.6 percent in August, but that sales excluding autos rose 0.4 percent, on top of August's 0.7 percent increase.//