5 December 2005, 09:57  The dollar kept up its rally against the yen Monday

The dollar kept up its rally against the yen Monday, hitting a fresh 32-month high after a weekend meeting of finance officials from Group of Seven industrialized nations did nothing to stem the dollar's climb. The dollar rose as high as 121.29 yen in Tokyo trading before slipping back to 121.25 yen, up 0.75 yen from late Friday in New York. That's the highest since March 2003. The dollar has strengthened on prospects that the U.S. Federal Reserve will continue to raise interest rates, further widening the interest rate gap with Japan, where the central bank has kept rates at zero to spur an economic recovery that is now taking shape. Higher interest rates make that nation's currency a better investment. In London, Japanese Finance Minister Sadakazu Tanigaki said Friday that he didn't discuss the dollar's recent gains against the yen in a meeting with U.S. Treasury Secretary John Snow. That has been widely viewed as a sign that the two nations are tolerant of the dollar's continued strength. "In a broad sense, recent moves reflect economic fundamentals," Tanigaki told reporters after the talks. Traders say the dollar may rise to 122 levels in upcoming weeks as recent U.S. economic reports spur optimism about the American economy. Friday's November U.S. payrolls confirmed that the U.S. economy is over worst of hurricane aftermath, with the market focus now shifting back to inflation, which tends to mean higher interest rates. The dollar's moves against the euro have been less pronounced although it also edged up against the euro in Asian trading Monday, causing the euro to fall to US$1.1703 from US$1.1716 in New York

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