LONDON, Dec 10 - The dollar rebounded sharply on Wednesday from the previous session's three-year lows against the yen and life lows against the euro, and traders attributed this to a suspected bout of dollar-buying intervention by Japan. The dollar rose more than one yen in early European trade, leaping well above 108.00 yen in a matter of minutes. There was no official confirmation that Tokyo was behind the move but dealers pointed the finger at the Bank of Japan. Traders suspected the BOJ was taking advantage of a minor recovery in the dollar, after it hit life lows for the eighth trading session in a row against the euro on Tuesday, in an effort to keep its decline from becoming disorderly. The dollar was already being helped in Asian trade, they said, after the U.S. Federal Reserve upgraded its view of the economy on Tuesday and dropped its concern about a deflationary threat, even though it left interest rates on hold and promised to keep monetary policy easy "for a considerable period".
"There hasn't been any official confirmation but when you see dollar/yen jump by a big figure in that manner you've obviously got to suspect Bank of Japan intervention," said Lee Ferridge, head of global currency strategy at Rabobank. "It was a good time to do it. The euro was coming lower anyway against the dollar after the Fed's slight shift last night, dollar/yen had been edging up all night -- it was a classic time to do it." By 0900 GMT, the dollar was up over one percent and near the day's high above 108.70 , its best for over a week. It was 0.8 percent higher against the euro at $1.2161 . The dollar was also up similarly against the Swiss franc , and two-thirds of a percent firmer versus both sterling and the Australian dollar .
INTERVENTION, FED
Before Wednesday, Japan was thought to have thrown almost 18 trillion yen ($168 billion) at the foreign exchange markets this year in a bid to prevent a strengthening yen from choking off the country's export-led recovery. Dealers said Tokyo might have entered the market to calm foreign exchanges after the dollar's string of lows threatened to turn its fall into a rout. "I think Tokyo knows that when market conditions look threateningly like they are moving into disorderly conditions that the scope for coming in more aggressively is there," said Derek Halpenny, currency economist at Bank of Tokyo Mitsubishi. "The last week to 10 days has clearly been one of those situations. In those circumstances I think privately Washington is more than happy to see Japanese authorities come in in a more aggressive way." The Fed held rates at one percent on Tuesday and in its accompanying statement reiterated its intention to keep benchmark borrowing costs low for a "considerable period". That wording disappointed dollar bulls, who had speculated the Fed could drop the phrase, which would have sparked expectation of a rise in U.S. interest rates and boost the greenback.
Low interest rates have put a dampener on capital inflows to the United States, which the world's largest economy desperately needs as its current account deficit has grown to some five percent of gross domestic product. Still, the U.S. central bank did provide a positive sign, saying the probability of an unwelcome fall in inflation had diminished and was now equal to the possibility inflation could rise. "It has taken a while to filter through but I think the market has now cottoned on to the fact that it was a reasonably significant shift last night, equally as significant as removing the 'considerable period'," said Ferridge at Rabobank.//