TOKYO, Jan 23 - The dollar drifted down to near one-week lows against the euro on Friday, but it managed to squeeze out gains against the yen on ever-present wariness that Japan would step in to prop up the U.S. currency. "At these levels, you have to be cautious about intervention," said Mitsuru Sahara, vice president of currency trading at UFJ Bank. Last year, Japan spent 20 trillion yen ($188.6 billion) on intervention to help support an export-led economic recovery, and market players estimate it has offloaded another six trillion so far in 2004. "I think 105 yen is the defence line for Japanese authorities now but they are taking a one yen buffer," said Junya Tanase, foreign exchange strategist at JP Morgan Chase. By 0244 GMT, the dollar was up at 106.20/23 yen versus 106.03/11 in late U.S. trade. Traders said buying by Japanese importers was also lending a hand to the greenback. On Thursday, the dollar fell to a one-week low of 105.94 yen, just short of a three-year low of 105.70. Japan's top financial diplomat, Zembei Mizoguchi, reiterated on Friday his standard line that Japanese authorities were continuing to watch movements in the markets closely. The euro was moving up to $1.2727/34, slightly below a one-week high of $1.2752 hit the previous day but still up from 1.2710/16 in late New York.
The single currency hit a life high near $1.29 last week. "It is true that European officials have been voicing concerns about the euro's strength, so I think it won't be able to test new highs at least until after the G7 (Group of Seven meeting)" said a trader at a major Japanese bank. The dollar started slipping on Thursday after the European Central Bank (ECB), in its monthly bulletin, voiced concerns about large swings in exchange rates. Some traders had expected the ECB to send out a stronger warning. ECB Chief Economist Otmar Issing also reiterated on Thursday the central bank's worries about sharp movements in the euro. "We hold with our concern about the brutality" of foreign exchange movements, he told reporters before addressing a dinner discussing global economic convergence sponsored by the World Economic Forum annual meeting in Davos, Switzerland. With the dollar's weakness widely expected to be a topic at the February 6-7 G7 meeting in Florida, the market was expected to keep an eye out for any hints of a G7 statement or action on currencies. Sherpas from the G7 economic powers are due to meet in Brussels on Monday for preliminary talks known as G7D. Japanese Finance Minister Sadakazu Tanigaki told a news conference he hoped to give an accurate picture of Japan's fiscal and monetary policies at the G7 meeting. ($1=106.05 yen)//