The dollar fell almost one percent against the yen and over half a percent against the euro on Tuesday after an influential newspaper said Tokyo could end its policy of selling yen for dollars by the end of March. A weaker than expected German economic sentiment survey took a back seat as the market focused on the article in the Nikkei Financial Daily and looked ahead to a Federal Reserve policy meeting later in the day. The Nikkei report -- an English translation of which was available in Monday's New York session -- suggested Japan could walk away from large-scale foreign exchange intervention by the end of this month. "The market had viewed Japan's intervention as an ongoing policy tool, not a temporary measure," said Shahab Jalioos, senior currency strategist at ABN AMRO.
"The report questions this understanding and has sent the dollar lower." Japanese officials denied any change in currency policy and Tokyo dealers suspected authorities of intervening to buy dollars just above 110 yen, backing words with action. But the effect was short-lived and the dollar fell as low as 109.24 yen in the European midsession, down almost one percent on the day. The dollar was also down more than half a percent against the euro, Swiss franc, sterling, Norwegian crown and New Zealand dollar.
NIKKEI RIPPLES
The Nikkei article had resonance coming after recent comments from Federal Reserve chairman Alan Greenspan that Japan's economic recovery may make yen-weakening intervention harder to justify. Keen to shore up its export-led recovery, Japan has poured more than 10 trillion yen ($91.44 billion) onto the foreign exchange markets in the first two months of this year. "The market showed a knee-jerk reaction. Obviously intervention on this scale can't go on indefinitely," said Mary Davis, global currency strategist at Credit Suisse First Boston. The euro also took advantage of the dollar's weakness, rising 0.6 percent to $1.2354 and shrugging off news of an unexpectedly sharp fall in German investor expectations. Germany's ZEW institute said its monthly gauge of economic expectations fell to 57.6 in March, its lowest since August 2003. It blamed the fall on concerns over the pace of Europe's economic recovery, particularly after last week's bombings in Madrid. Earlier on Tuesday the BOJ kept its monetary policy unchanged, taking heart from mounting evidence of an economic pick up. Separately it also kept its economic assessment unchanged in a monthly report, saying the economy was in a gradual recovery. The Federal Reserve holds a one-day meeting on interest rate policy and a statement is expected at 1915 GMT. No change in rates is expected.////