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Dlr finds more options than it can deal with

TOKYO: The dollar was left to gather dust in Tokyo on Wednesday by a market mesmerised by the impending expiry of a horde of options positions.

The euro was also holding middle ground around $0.9810, having ricocheted between $0.9764 and $0.9864 overnight as rumours of central bank action, including rate checks by the Federal Reserve, roiled the market.

The dollar had been supported overnight by a healthy 198 point rise in the Dow Jones Industrial index and by news Japan was considering raising some corporate taxes. But in Tokyo time, traders said position tuning for option expiries was serving as an excuse to do nothing. "Options-this, options-that. It's all you hear about," said one exasperated US bank dealer.

"With any luck they'll all have expired by Friday and we can get back to fundamentals, assuming we can decide what they are," he added. Dealers said options worth around $900 million with a strike price at 110.00 yen were believed to be rolling off on Wednesday, and another $2.0 billion worth on Friday. In the meantime, banks with exposure to the options were doggedly defending the 109.50 to 109.80 zone.

Dealers also reported offers from Japanese exporters above 109.30 yen, but good support from a variety of names under 109.00 and particularly 108.50, on Tuesday's New York low.on Thus The dollar was tethered at 109.10 yen against a US close of 109.16 on Tuesday. The dollar did get an early boost from a Nikkei newspaper report that the ruling Liberal Democratic Party's tax panel was considering a new tax on firms nationwide which would be assessed on the basis of their sales or capitalisation rather than on income.

Dealers said the initial report caused some dismay in New York as it seemed to imply the new tax would replace the standard national corporation tax levied on income. But the local market was more measured as it knew from past experience that the proposal is for a new tax levied at the prefecture level which would be at a rate far lower than the national corporate rate of about 40 percent, perhaps only a percent or two.

Dealers also noted that the proposal was a long way from being implemented as it was dependent on the economy entering a self-sustaining recovery. The sanguine mood was reflected in the Nikkei average, which stood 190 points higher at 19,558 in late trade.

The market also shrugged aside recent concerns about rising bankruptcies in Japan, with many analysts here arguing that this was a positive sign of corporate restructuring.

The better tone was augmented by news Moody's had upgraded the credit ratings of three major Japanese banks Dai-Ichi Kangyo Bank Ltd, Fuji Bank Ltd and Industrial Bank of Japan Ltd. For the euro, it spent the local day in an even tighter range of $0.9809/21 with dealers still trying to sort out what happened in New York.

There it shot from $0.9764 to $0.9864 in almost one move after a European name bought a large amount and rumours swirled that the Fed had checked rates.

Dealers doubted the talk but said there were signs some of the individual European central banks had bought euros. Dealers said on the face of it this demand was for position adjustment rather than actual intervention, but noted the effect was the same.

The Swiss franc was also the subject of intervention talk with dealers having spotted the Swiss National Bank selling the dollar when it climbed above 1.6400 francs in New York. That was enough to bring the dollar back to 1.6319/24 in late trade in Tokyo from a high around 1.6450 overnight. Currency bid prices. All data taken from Reuters with percent change calculated from the daily US close-Reuters