The dollar rose to one-month highs against the yen for the third consecutive day on Friday as more traders bought back the U.S. currency that they had sold during a steady two-year downtrend. The dollar initially edged lower amid scepticism that this week's rebound could be sustained. But many traders were giving up -- at least for now -- on their short dollar positions as heavy intervention by the Japanese authorities appeared to succeed in halting the currency's slide at around 105 yen. Snowballing position adjustments also prompted some firms that had been beneficiaries of a weak dollar to start procuring dollars with urgency. "Yesterday, we were still seeing Japanese exporters selling dollars because they expected the dollar's bounce to be very short-lived. Today they are more relaxed, and importers are being forced to cover their exposures," said Hiroyuki Watanabe, foreign exchange manager at Shinsei Bank. The dollar rose to around 107.55 yen by 0240 GMT, up nearly a half yen on the day. It is now about three percent above 3-Ѕ year lows set earlier this month around 105.10 yen, which in turn was more than 20 percent down from its peaks above 135 yen two years earlier.
STAYING POWER
Traders said the dollar's rebound, even if it were merely position adjustments, would likely continue, given the scale of the short positions that have accumulated. Kazuo Watanabe, general manager of international bonds and forex at Daiwa Securities SMBC, said Japan's intervention, which soared to a record 20 trillion yen ($186.9 billion) last year and went ballistic with a further seven trillion in January alone, was far bigger than Japan's trade surplus. "This means a lot of the dollar's decline can be attributed to non-commercial selling," he said. "The cost of carrying short dollar positions isn't so big as the interest rate differential is small, but hedge funds and the like -- including ourselves -- have been short the dollar for quite some time now." With trading dominated by position adjustments, the market showed muted reaction to Japan's all-industries index, widely regarded as close proxy to gross domestic product. It landed slightly weaker than the market had expected, falling 0.4 percent in December from a month earlier. The dollar was little changed against the euro, seesawing in a modest range around Thursday's closing levels. At 0600 GMT, the euro stood at $1.2704/09 , down from around $1.2715 late in Thursday's New York trade and more than two cents below life highs around $1.2930 set on Wednesday. Sterling was also little changed, giving up early gains to trade around $1.8925/30 , about two cents below Wednesday's 11-year highs around $1.9140 .
The pound's relative resilience against the dollar, thanks in part to relatively high UK interest rates, and the yen's weakness combined to push the sterling/yen cross rate to five-year highs around 203.75 yen. "Japan's massive yen-selling intervention against the dollar has distorted all yen cross rates. Hefty gains in sterling/yen are also exaggerated by that," said Koji Fukaya, chief forex analyst at Bank of Tokyo-Mitsubishi. Looking ahead, traders were awaiting U.S. consumer prices data for January, due at 1330 GMT. Analysts expect a rise of 0.1 percent in the core CPI, which excludes volatile food and energy items, and a 0.3 percent rise in the overall CPI. ($1=107.00 yen)//