TOKYO, Jan 26 - The dollar edged down against the euro and the yen on Monday, but investors were careful about selling the U.S. currency heavily due to wariness over how the Group of Seven (G7) would react to its recent weakness. "You really cannot buy the euro as some European monetary officials have expressed caution over the euro's sharp gains," said Hideaki Furumaya, head of the corporate desk at Trust and Custody Services Bank. "In this mood, it is always a risk to hold euros, which can come under heavy selling pressure easily," he said. The euro's surge over the past several months has drawn intensified caution from European officials. On Friday, a European diplomatic source said euro zone ministers attending a meeting of the G7 economic powers on February 6-7 will say a further strengthening of the single currency could cause the European Central Bank to loosen monetary policy. Deputy ministers are due to meet in Brussels later on Monday to lay the groundwork for the meeting, but no statement or comments are usually released after such talks, known as G7D. By 0332 GMT, the euro had edged up to $1.2575/80 from a morning low of $1.2569, but it was still about 2.5 percent off life highs around $1.29 set two weeks ago.
The greenback fell about a half yen to around 106.20 yen from early highs on strong commercial selling interest and exporters' sales, which are usually more active during the final week of the month, dealers said. Persistent concerns about Japanese intervention helped provide support for the greenback. "There is strong wariness over intervention, which makes it tough to sell dollars below 106 yen," Furumaya said. "I don't think the market is willing to build up new sell positions from present levels unless it drops well below 105.50 yen." On Friday, the dollar briefly came within a whisker of three-year lows around 105.70 yen set earlier this month and then jumped toward 107 yen, with dealers suspecting possible intervention.
UFJ REPORT
The yen was briefly put under selling pressure on a weekend newspaper report that Japan's Financial Services Agency (FSA) would investigate loan records at a unit of the nation's fourth-biggest banking group, UFJ Holdings <8307.T>. Shares in UFJ, which said the report was untrue, tumbled 12.59 percent to 465,000 yen after the Nihon Keizai daily said the FSA had discovered that the situation of many UFJ borrowers might be worse than indicated in the bank's official assessments. "I believe some players sold the yen on speculation that the Nikkei would fall sharply on UFJ, but yen-selling didn't last long," said Takashi Toyahara, forex section manager at Nomura Securities. "The market is still unsure how this (UFJ story) will develop, but I don't think people are worried that it will lead to a major financial system problem," he said. The market showed little reaction after the Finance Ministry released figures for Japan's trade surplus, which rose 41.2 percent in December from a year earlier, with exports rising 8.5 percent and imports gaining 1.6 percent. Japan's persistent trade surplus has often been cited as a reason behind the yen's strength. But the surplus for the whole of calendar 2003, at 10.36 trillion yen ($97.30 billion), was only about half of the roughly 20 trillion yen that Japanese authorities spent on foreign exchange intervention in the year to bat down the buoyant yen.//