TOKYO, Oct 29 - The yen remained near a three-year high against the dollar on Wednesday, although speculation of yen-selling intervention by Japanese authorities capped its rise. Market sources said the Bank of Japan may have intervened in early Asian trade on Wednesday, selling the yen against the dollar to stem further rises in the Japanese currency after it climbed to a three-year high of 108.09 yen per dollar. The yen's rise came after strong Japanese output data, which also fanned talk that U.S. Treasury Secretary John Snow may criticise Japan's attempts to weaken its currency at a Senate hearing on Thursday. "The strong data added momentum to the trend of a strengthening yen, and we haven't changed our view that the yen should rise to 105 per dollar by the end of the (calendar) year," said Junya Tanase, forex strategist at JP Morgan Chase in Tokyo. By 0245 GMT, the dollar had bounced back to 108.20 yen, little changed from late U.S. levels. Apart from wariness about Tokyo's interventions, there was sizable buying to protect options around 108 yen, dealers said.
The euro was around 126.50 yen compared to its late Tuesday U.S. level of 126.35 yen but down sharply from around 127.30 yen in early Asian trade on Tuesday. Earlier on Wednesday, the government said Japan's industrial output rose 3.0 percent in September from a month earlier on a seasonally adjusted basis, the biggest gain since May 2002, and much higher than forecasts of a 1.5 percent rise. The data lifted the Tokyo stock market's benchmark Nikkei average <.N225> nearly two percent in the morning to 10,767.14, fuelling speculation that strong inflows of foreign funds to Japanese stocks will continue, supporting the yen.
SNOW HEARING
Some analysts also said recent upbeat economic data in Japan had intensified speculation that Snow would speak out against Japanese intervention to boost the dollar. "Snow has no choice but to be more critical about Japan's currency manipulation than in the past because its massive volume of forex intervention cannot be justified now that the economy is improving much faster than expected," Tanase said. The dollar also sagged against other currencies. The euro edged up to around $1.1685 from $1.1665 in late U.S. trade. Sterling rose to a five-year high of $1.7018 , partly helped by growing speculation the Bank of England may hike interest rates in the near future. On Tuesday, the dollar gained versus the euro except for a short spate of vacillation after the Fed's decision to hold rates unchanged, on a surprise jump in U.S. consumer confidence data.
The Fed also ratcheted up its assessment of the economy, saying the U.S. labour market "appears to be stabilising" whereas it had previously said the market had "been weakening", although the Fed's statement was almost identical to its statement after its September meeting. The market's focus is now turning to U.S. data later in the week, including the release of third-quarter gross domestic product. Economists' consensus forecasts are for a rise of six percent.//