The yen slipped from near a four-year peak against the dollar on Friday as Japanese investors bought fresh foreign assets at the start of the fiscal year in a market otherwise becalmed ahead of key U.S. jobs data. "Japanese investors' fresh investment is blossoming," said a trader at a major Japanese bank. "But this will take place only in Asian markets," he said, adding that participants remained focused on the non-farm payrolls data due at 1330 GMT. Japanese investors, frustrated by near-zero interest rates at home and seeking higher returns abroad, are allocating fresh money for the financial year that kicked off on Thursday. "Japanese investors' buying of dollars won't have a lasting impact," said Yoshiharu Yanagisawa, vice president at State Street Bank in Tokyo.
Traders say the dollar could get bogged down in a two-year-old declining trend -- blamed on the gaping U.S. trade deficit and low U.S. interest rates -- unless the payrolls data boosts the U.S. economic outlook. Economists on average say 103,000 more jobs were probably created in March than in February, while some traders forecast a larger figure. Still, most traders were cautious as the data has had a habit recently of causing disappointment. The February payrolls data posted a rise of just 21,000 and sent the dollar reeling as it dented hopes for a Fed rate hike in the near future. The Fed fund rate is at one percent, the lowest level since 1958. Low U.S. rates are thought to have worked against the dollar as they discourage foreign investors from buying U.S. bonds. "I'd say the dollar will be sold if the (jobs) data is in line with expectations, and even a strong reading would just give it a mild boost," said Junya Tanase, forex strategist at JP Morgan Chase in Tokyo. "The dollar's longer term downtrend is unchanged." Tanase said the Fed was unlikely to consider lifting rates until payroll figures show jobs growth of around 150,000 or more for several consecutive months.
As of 0606 GMT, the dollar was around 104.20 yen , up about 0.5 percent from late U.S. trade. Still, it was not far from the four-year low of 103.40 hit on Wednesday while the yen rides high on growing optimism the Japanese economy may be staging its strongest recovery since the bursting of the asset bubble more than a decade ago. On Thursday, the Bank of Japan's "tankan" survey showed Japanese corporate sentiment was the brightest in nearly seven years.
100-YEN LEVEL
Many analysts say that given improving economic fundamentals, large foreign buying of Japanese stocks, and the Japanese authorities apparent scaling back of currency intervention, the yen could soon challenge the 100 per dollar mark. Japan's top financial diplomat, Zembei Mizoguchi, said on Friday that Tokyo's stance on foreign exchange was unchanged, and that it would continue to act as needed in the market. Toshiaki Kimura, group manager of forex trading at Mitsubishi Trust and Banking, said that the dollar may drop below 103 yen in April, and could test 100 yen by June. The Nikkei average <.N225> gained more than one percent, as foreign investors continued to pour capital into Japanese assets. The latest data from the Finance Ministry on weekly capital flows shows that net purchases of Japanese stocks by foreigners from March 1 to March 26 totalled 2.58 trillion yen ($24.88 billion), which would likely make the month of March a record.
The euro was around $1.2350 , little changed from late U.S. levels. Still, it was closer to Thursday's 10-day high around $1.2390 than to its near-four-month low of $1.2034 hit on Monday. The single currency hit the high after European Central Bank President Jean-Claude Trichet said the bank was in no hurry to cut rates. While the bank kept policy unchanged as expected, Trichet wrong-footed many traders, who had expected him to signal a rate cut in coming months to help shore up sluggish euro zone economies. The euro also rose to 128.70 yen from around 128.12 in late U.S. trade, helped by fresh allocations by Japanese.///