The dollar regained some ground against the yen on Friday, moving away from four-month lows hit the previous day, as the market remained reluctant to push the U.S. currency below the closely watched 107 yen mark. While most traders said the short-term outlook for the dollar was deteriorating, with positive U.S. data on Thursday having had little impact on the currency, few were eager to knock it below 107 yen, the lower end of the five-yen range it has occupied for the past five months. "Most people still see 107 yen as the bottom. (Japanese) importers are picking up the dollar today," said a trader at a Japanese bank. Katsunori Kitakura, manager of the treasury department at Chuo Mitsui Trust and Banking, agreed the market would need fresh incentives to further sell the dollar against the yen. "We are approaching the lower end of the 107-112 yen range and the push (down) from here will be tough," he said. "Also, I don't think players will be eager to take large positions ahead of the U.S. election." Traders said heavy options-related and Japanese importers' buying were expected above 107 yen and the market lacked fresh incentives to overpower them. At 0449 GMT, the dollar was buying 107.67/70 yen , up slightly from 107.48 in late U.S. trade and a four-month low of 107.35 on Thursday.
The euro was at $1.2616/21 versus 1.2616. It rose to an eight-month high of $1.2652 on Thursday. In little over two weeks, the dollar has slid 3.7 percent against the yen and 3.3 percent versus the euro as simmering concerns about the trade deficit resurfaced in the aftermath of weak U.S. data. On Thursday, however, the U.S. government reported a better than expected drop in claims for jobless benefits to 329,000 in the latest week from 354,000 a week earlier. The Philadelphia Federal Reserve's business activity index also jumped in October to 28.5 from 13.4 in September. Analysts had been looking for a reading of 17.0.
TANIGAKI SERVES WARNING
Alarmed by the steep rise in the yen, Japanese Finance Minister Sadakazu Tanigaki said on Friday his ministry would take any necessary action if the yen's value deviated from economic fundamentals. Japan has not intervened in the currency market since mid-March when the yen was probing four-year highs against the dollar around 103.50 yen. Many traders think Tokyo could resume its intervention should the dollar fall to around 105 yen. China reported on Friday the economy expanded 9.5 percent in the first nine months of 2004 year on year even as Beijing reined in breakneck investment and lending. The consumer price index for September was 5.2 percent higher than a year earlier. That figure compares to a median forecast of 5.3 percent in September from a survey of economists. Though major currencies were unmoved by the data, some analysts said the continuing strength in the Chinese economy could benefit the yen and the Australian dollar.
"Overall it looks like there's not much of a shock in the data here. But it may lend a bit of support to the yen, and also the Australian dollar, which are probably the two currencies that have the most to gain from strong Chinese growth," said Jake Moore, currency strategist at Barclays Bank in Tokyo. The Australian dollar was at 73.64 U.S. cents , little changed on the day and off a six-month high above 74 cents hit the previous day. From Europe, the market is awaiting U.K. third quarter growth data due at 0830 GMT. Economists forecast gross domestic product to show quarterly growth of 0.5 percent and annual growth of 3.2 percent, compared with 0.9 percent and 3.6 percent respectively in the second quarter. Sterling was trading at $1.8280 , slightly firmer compared with late U.S. levels and within striking distance of a two-month high of 1.8310 hit on Thursday.///