The dollar slipped against the yen on Monday on geopolitical concerns and as Japanese investors converted interest payments on U.S. Treasury bonds into yen. Dealers said dollar selling had been spurred in early trading by news that bombs had exploded outside branches of British bank HSBC in Turkey on Sunday, just hours before British Prime Minister Tony Blair was due in the country. "This morning there was a lot of talk about trying for 115 yen...and many thought last week's dollar-buying spree would continue," said Shogo Nagaya, forex manager at Nomura Trust and Banking. "But the (U.S.) interest rate rise has already been factored in for June, and there was a resurfacing of geopolitical risk, so you could say the market has cooled down a bit."
The dollar was trading at 113.75 yen at 0646 GMT. Earlier in the day, the U.S. currency had slipped more than one yen to a low of 113.53 yen from the day's high of 114.65 yen. Dealers said the conversion of the proceeds of Treasury coupon payments into yen had fuelled early selling along with news of the Turkish bombs, and that had triggered stop-loss sales on the dollar. The U.S. currency was also facing lingering pressure from U.S. inflation-related data released late last week, which drove it down one cent against the euro in late Tokyo trading. It was trading at $1.1961 after hitting a 10-day low of $1.1981 in late Tokyo trade. The single currency was trading at 136.03 yen , firming slightly from New York levels. Traders said the market was ripe for position adjustments after weaker-than-expected U.S. consumer sentiment data on Friday had raised doubts over the strength of the U.S. economy. But the dollar's drop was likely to be temporary, they said, given the battering Japanese stocks have been taking in recent weeks and the surfacing of fresh woes in Japan's banking sector. "There's support around 113.50 and, given the Nikkei's mounting losses and the news about UFJ, dollar-selling pressure will be short-lived," said Nomura's Nagaya.
UFJ Holdings Inc <8307.T>, the smallest of Japan's "big four" banks, may cut its earnings estimate for the year that ended in March for a second time as the cost of cleaning up bad loans mounts, sources told on Monday. Japanese media had reported earlier that UFJ would post a net loss for the year.
SELLING JAPAN
The dollar had risen earlier on Monday on the likelihood that foreign investors would continue to dump Japanese stocks. "Foreigners are likely to keep selling Japanese stocks in the near term," said Koji Fukaya, a currency analyst at Bank of Tokyo-Mitsubishi, adding that many foreign funds and companies would adjust their long yen positions before half-year book closings at end-May and end-June. Capital flows data released on Monday showed that foreign investors bought a net 717.8 billion yen ($6.27 billion) of Japanese stocks in April, but dealers said they were more focused on the Nikkei's fall this month. The Nikkei stock average <.N225> fell more than three percent on Monday as investors remained worried about surprisingly weak machinery orders figures last week, which raised concerns ahead of Japanese gross domestic product (GDP) data due on Tuesday. Japan's economy is widely expected to have grown at a slower pace in the first three month of the year than the 1.6 percent quarter-on-quarter growth seen in October-December. However, analysts said a strong preliminary figure could offer support for the yen and stave off more Nikkei losses, if only temporarily. ($1=114.56 Yen)///