The US dollar eased from its best levels against the yen in Asian trading on profit-taking after recovering overnight following a pullback in commodity prices, dealers said.
Comments by Finance Minister Sadakazu Tanigaki that it is possible that the Japanese government will sell its holdings of US Treasuries to fund future intervention in the currency market, also caused the dollar to slip.
Tanigaki also told the finance affairs committee of the upper house that Japan does not have to reduce its huge foreign reserves, which are "set aside for intervention in the future." Asked under what general circumstances the ministry might opt to sell its US Treasuries holdings, Tanigaki said: "Basically they are foreign currencies, funds for conducting forex intervention, so our basic stance is to use them at such a juncture." "We have to be ready for such an occasion to use them, but I would not comment how high such possibility can be," he added.
Japan has not intervened in the forex market since March 2004 after conducting a massive year-long dollar-buying intervention to prevent the yen from appreciating too fast and hurting exporters. "The downturn in commodity prices prompted short-term players to unload huge long positions on the yen and the euro against the US unit," said Bank of Tokyo Mitsubishi UFJ forex analyst Masashih Hashimoto, adding it came at a time when technical charts are beginning to signal that a correction may be due for the dollar after sharp losses recently.
Overnight, the dollar was also supported by a US Treasury report showing steady capital inflows into the US, although they fell to 69.8 bln usd in March from 90.5 bln in February. But lack of follow-through buying failed to push the dollar higher.
"If the dollar could stay above mid-110 yen today, it could rebound to above 111 yen," Hashimoto said.
Dealers said market participants are also waiting out more US data including the producer price index and housing starts, both due later in the global session, for trading leads.
The euro continued to ease against other major currencies as players lock in recent gains althogh currency analysts say the outlook for the single currency remains bright on expectations of a narrowing interest rate gap between the US and the Euro zone and talk of more foreign exchange reserve diversification by central banks