By Yumi Kuramitsu, Bridge News
Hong Kong--Jan. 16--Dollar/yen fell to 118.17 in Asian trade Tuesday as U.S. and Japanese names aggressively sold the pair to take profits. Euro/yen was pressured by the decline and also met some profit-taking of its own after the recent sharp recovery. The European single currency eased against the dollar as euro-crosses were sold.
Dollar/yen strengthened in early morning trade to a high of 119.17 on aggressive buying from Japanese investment accounts.
However, the topside was well capped by heavy selling from U.S. names, who were later joined by their Japanese counterparts.
One U.S. short-term fund was sighted offering near 119.10 and similar funds are said to have been persistent sellers of the pair.
Sell-stops were triggered on the break of 118.50, and dollar/yen fell as low as 118.17 in Asia.
Dealers speculated the selling was primarily for profit-taking purposes, while those who set up long positions in early morning trade were also being forced out.
The persistent selling from U.S. names caused other traders to wonder if the sellers might know something that they didn't.
One round of speculation centered on the possibility that the U.S. Treasury Secretary-nominee Paul O'Neill could be set to voice reservations about the strong dollar policy because it reduces the competitiveness of U.S. exporters.
Others say that excessive yen weakness might be a problem for Japan's Asian neighbors as was the case in 1998.
But both rumors proved baseless.
Meanwhile, Andy Xie, chief economist at Morgan Stanley Dean Witter Asia, expressed concern that the Chinese government is not likely to tolerate a USD/JPY above 130.00, the same level they publicly complained about in April 1998.
Of most concern to China is the erosion of competitiveness in exports and imports, he said. Relative strength of the CNY--which is unofficially pegged to the USD--would dampen China exports and encourage Japanese competitors to import into China's domestic market.
Euro/yen fell to 111.25, led by selling from European names, which in turn pressured dollar/yen and euro/dollar.
There was speculation that some strategic players have begun to close mid-term yen short positions against the single currency.
The persistent selling of euro/yen discouraged dealers from moving forward with their bearish yen strategies, even though they are bearish on yen in the long run, dealers said.
After rising to 0.9442 in early morning trade on bids from U.S. players, euro/dollar fell back to below 0.9400 on euro-cross selling. Some pegged the euro/dollar's pull back to selling of the euro/Aussie. Profit-taking in euro/yen also pressured euro/dollar.
A slew of comments by Japanese officials failed to impact trade. Japanese Finance Minister Kiichi Miyazawa was a little more cautious about the weaker yen Tuesday but still appears to be tolerant at current levels.
He said he will watch the dollar/yen's moves a little longer to determine if the recent dollar/yen strength is only temporary. He said he doesn't believe there has been any confusion in the market since the yen began to weaken late last year.
Minister for Economic and Fiscal Policy Fukushiro Nukaga also reiterated that the current yen level is not a problem for the Japanese economy.
Officials from the Japanese business community society were also comfortable with the way the currency is trading at the moment. Chairman of the Japan Association of Corporate Executives (Keizai Doyukai) Yotaro Kobayashi said Tuesday that a dollar/yen between 100 and 120 is not a problem for Japanese businesses.
The lobby's Vice Chairman and Orix Corp. Chairman and CEO Yoshihiko Miyauchi also said he didn't consider the Japanese currency to be weak against the dollar at the moment.
As for the government's stock boosting measures, Nukaga said the government should not implement price keeping operation-type steps, rather he favors studying measures to allow firms to buy their own stock. Chief Cabinet Secretary Yasuo Fukuda also indicated he doesn't want PKO-type measures, saying any steps that support share prices temporarily are meaningless.
A ruling Liberal Democratic Party committee established to create measures to boost the Japanese stock market will consider liberalizing the purchase and possession by companies of their own shares, known as treasury stock, the Nihon Keizai Shimbun quoted LDP lawmaker Hideyuki Aizawa as saying.
The move could help insulate the stock market from selling pressure from banks unwinding cross-shareholdings. The committee will compile detailed plans by the end of this month.
The Nikkei 225 Stock Average closed Tuesday higher for the third straight session, on expectations that the government will take steps to stabilize the stock market and that exporters will benefit from the yen's weakness. The Nikkei rose 78.22 points, or 0.6% to 13,584.45.
On the data front, Tokyo department store sales rose for the second month in a row in December, climbing 0.5% on year.
Japan's machinery makers saw the value of orders from the private sector, excluding orders for ships and those from the electric power industry, decline 2.9% in November from October. The data, which is an indicator of private capital investment, was worse than economists' average outlook of no growth but failed to have an impact on the yen. End