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Dlr advance blocked by exporters about

TOKYO: The dollar's advance against the yen was halted during Tokyo trading on Wednesday, checked by heavy selling led by Japanese exporters around 106 yen, dealers said.

The dollar was initially buoyed to a high of 106.18 yen but lost momentum after failing to reach the overnight high of 106.32. Dealers expect the short-term bias to be on the upside, but stiff resistance is seen near 106.50/60 yen.

"The market faced strong sales from exporters. They clearly became an obstacle to limit the dollar's advance against the yen today," a Japanese city bank dealer said.

"Many exporters were still forecasting the dollar will come under selling pressure again in the long run. So they were aggressive about selling dollars at recent rallies, especially eager to convert them around 105 yen through forward contracts."

With a spot dollar rate above 106.30 yen, exporters using forward contracts can lock in conversion rates above 105 yen for their dollar-denominated revenue at the fiscal year-end on March 31. That's because three-month forward rates have a discount of around 1.30 yen, dealers said.

Some exporters may even show selling interest should the dollar rise to around 108 yen to convert foreign earnings at the end of June, with six-month forward rates having a discount of about three yen, they said.

"I don't think exporters' selling demand will determine the trend of the dollar/yen rate, but it is currently having an impact to slow the dollar's upward swing," another Japanese city bank dealer said. Persistent short-covering of euro/yen by Japanese investors also indirectly supported the dollar/yen rate, dealers said.

These investors were buying back the euro to unwind their hedged positions built up when the European unit was falling in late December.

"Recent rapid rallies in the euro/yen rate have clearly forced Japanese investors to unwind their over-hedged positions," a European bank trader said.

"Further gains in the euro could spur more short-covering by investors. It seems many overseas speculators were bidding to induce short-covering from the investors," the trader said. "This move has supported dollar/yen.

Early rounds of follow-through buying of the euro pushed the European unit to a high of 109.73 yen, but profit-taking pared its gains.

Dealers said caution ahead of a meeting of Group of Seven finance ministers and central bankers on January 22 has made many operators nervous about holding on to the yen.

"Japanese authorities have been pretty explicit that they do not want an excessively strong yen," another European bank dealer said.

"So the market is gearing up for the G7 meeting and a Bank of Japan policy-setting meeting before that. Speculation that they (the G7 officials) will express concern about a strong yen will hinder yen-buying interest for now," he added.

The BOJ will hold a Policy Board meeting on January 17.

The euro was also well-supported against the dollar EUR, as fund reversals from dollar-based assets into euros continued to buoy the European currency.

On Tuesday, the Dow Jones industrial average fell 61 points or more than half a percent, while the technology-laden Nasdaq composite index shed more than three percent.

Speculation that the Bank of England will raise short-term interest rates also kept sterling firm against the dollar The BOE's Monetary Policy Committee will conclude a two-day meeting on Thursday.-Reuters