TOKYO, Jan 9 - Japan signalled its strong commitment to halt a further rise in the yen by conducting massive intervention in the currency market on Friday, initially pushing the dollar up more than two yen on the day. But an underlying dollar-selling trend fuelled by concerns over a widening U.S. current account deficit remained intact, and the dollar quickly lost about half the gains made from the yen-selling intervention by the Bank of Japan (BOJ). "This is a clear message from MOF (the Ministry of Finance) to the market that they will stop the dollar from falling towards 105 yen," said a senior trader at a U.S. bank. The dollar had fallen to around 106.18 yen before jumping as high as 108.30 yen -- its highest since December 15 -- helped also by options-related buying. But by 0720 GMT it had slipped back to 106.66/71 yen. "Market sentiment remains bearish for the dollar and intervention will not change this," said Soichi Okuda, a senior economist at Sumitomo Corp.
Traders said the BOJ initially stepped in at around 106.20 yen and intervened again in heavy amounts after resistance around 106.50 yen was cleared. The MOF declined to comment on the apparent intervention but a ministry official said the yen's recent strength was due to speculation and not based on economic fundamentals. Finance Minister Sadakazu Tanigaki told during a visit to Singapore that Japanese authorities will intervene if the yen overshoots but declined to comment when asked if they had taken action on Friday. Traders said the intervention, conducted through several banks, could have totalled one trillion yen ($9.42 billion). A market source said Japan, worried that a strong yen could hurt an export-led recovery in its economy, spent about three trillion yen in intervention on Monday and Tuesday. But the yen fell to a three-year low of 105.90 yen per dollar on Wednesday.
RECORD INTERVENTION
In 2003, MOF spent a record 20 trillion yen in intervention. In a move to secure more intervention funds, the MOF announced last month that it would seek to raise the borrowing limit on its currency intervention account to 140 trillion yen in the fiscal year starting next April from 79 trillion yen. The increase of 61 trillion yen is equivalent to about $540 billion -- roughly the annualised size of the U.S. current account deficit based on the latest third-quarter figures. As a stopgap measure to avoid a funding crunch before parliament approves the raising of the borrowing limit, the ministry has arranged a "repo" deal with the BOJ in which it can get funds by selling foreign bonds to the central bank, buying the paper back at a later date. "They (the MOF) have plenty of funds now and so I think they are trying to show their strong posture that they will stand firm," said Sumitomo Corp's Okuda. On Tuesday, Toyota Motor Corp <7203.T> President Fujio Cho repeated his view that the yen was "a bit too strong" in light of Japan's economic fundamentals. The Tokyo stock market's key Nikkei average <.N225> closed at an 11-week high of 10,965.05 on Friday after the yen's fall triggered buying of shares of exporters and tech firms. ($1=106.19 Yen)//