TOKYO, Feb 6 - The dollar reached one-week highs against the yen on Friday as traders bought it back to reduce their exposure ahead of a Group of Seven meeting starting later in the day. The dollar spiked to 106.25 yen in hectic trade, continuing an advance sparked by upbeat comments on the U.S. economy by Federal Reserve Board Governor Ben Bernanke. His comments prompted short-covering by dollar bears who had sold it aggressively on the view that the G7 would not agree on any substantial move or statement to stem its long decline. "Everybody has been thinking the dollar will fall after the G7 meeting and everyone has been preparing their positions for that," said a trader at a European bank.
"So now people have started to think there's a chance the dollar will not fall as much as expected." As of 0630 GMT, the dollar was around 106.15 yen , up about 0.2 percent from late Thursday U.S. levels. "I think some market players were trying to hit stop-loss orders above 106 yen," said Masamichi Koike, forex manager at Sumitomo Mitsui Banking Corp. Spikes by the dollar on Friday morning in Tokyo raised speculation that the Bank of Japan was intervening again in the market -- an inevitable conclusion after the central bank sold a record seven trillion yen last month to stem the yen's export-damaging rise. But there was no clear consensus and some traders thought nervousness exaggerated price movements ahead of the G7 meeting on Friday and Saturday in Florida. The euro was steady to slightly easier, parked around $1.2545 , down less than 0.1 percent from late Thursday U.S. levels, but down nearly one cent from its one-week high of around $1.2638 hit in New York.
U.S. RATE OUTLOOK
The dollar's rebound started late on Thursday after Bernanke, an influential voice within the Fed, said the U.S. economy should post gross domestic product growth of four percent or better in 2004 and the recovery should be more balanced, with employment growth starting to pick up. His upbeat comments raised expectations of interest rate rises in the United States -- a boost for the low-yielding dollar -- although he indicated that low inflation provided breathing room for the Fed to hold off on rate increases. "If the dollar is to rebound, that's probably when the U.S. starts to raise rates," said Kota Kimura, an assistant manager at Shinkin Central Bank. "So some cautious people were starting to buy back the dollar." Bernanke's optimistic view on jobs also led some players to speculate that January U.S. non-farm payroll data due out at 1330 GMT on Friday could be even stronger than the market's fairly robust expectations for a rise of 150,000 jobs. Still, the dollar met heavy offers from Japanese exporters, who are desperate to get rid of dollars they earn overseas, amid a growing consensus that the United States, Europe and Japan will be unable to agree on the best course of action for halting the dollar's decline. European policy-makers have voiced concern that the euro's surge against the dollar is watering down the euro zone's nascent economic recovery while Japan's massive interventions to curb the yen have insulated the Japanese economy from a similar impact to some extent. Finance Minister Sadakazu Tanigaki said on Friday he would tell his G7 counterparts that Japan would take action against irregular movements in the foreign exchange markets. The Ministry of Finance reported earlier that it intervened in October-December without the help of other central banks and sold 5.8755 trillion yen ($55.55 billion) to stem the yen's rise against the dollar. ($1=105.76 Yen)//