20000118

Dollar struggles in cautious trade against yen

TOKYO: The dollar suffered moderate losses against the yen by late Tokyo on Monday, pressured by technical sales and yen-buying on the crosses, but trading was cautious ahead of Saturday's Group of Seven meeting in Tokyo.

Unwinding of dollar long positions intensified as the yen received support from a jump in Tokyo's Nikkei stock market index to a 2-year high and and yen-buying against the euro.

"The dollar had clearly been in an upward trend since the start of the year, but it struggled to extend gains at around 106.40 yen last week," a European bank trader said.

"Given the mood, short-term players actively unwound their positions further before the G7 meeting. The downward swing increased especially after stop-loss selling orders were triggered around 105.30/40 yen," he said.

The euro was steady against the dollar after dipping sharply in overseas markets on Friday, but it faced strong selling pressure against the yen, dealers said.

Monday's news that German pharmaceutical firm Boehringer Ingelheim had launched a bid to raise its stake in Japanese drug maker SSP Co Ltd triggered yen-buying against the euro, dealers said.Boehringer Ingelheim aims to raise its stake in SSP to 33.4 percent from its current 19.6 percent through the bid at 1,100 yen per share which values SSP's entire equity at 134.6 billion yen ($1.28 billion).

But dealers said the speculative yen buying on the news was short-lived.

"This kind of news would surely have the effect of weighing on the euro for some time, but it's still unclear on how it (Boehringer Ingelheim) would supply the yen from the market," a Japanese trust bank dealer said.

"We've seen similar alliances in the past,like in the case of Renault and Nissan, but such factors have never rocked the market in a way to change the trend drastically."

The euro's downtrend accelerated after it dipped below key support levels of 107 yen and 106.60 yen, compared with last week's highs of around 109.5 yen.

The move below 106.60 yen gave the euro a slightly bearish near-term sentiment, the trust bank trader said.

Some traders were focusing on the outcome of Monday's Bank of Japan's policy-setting meeting, although most expect the central bank to keep its current zero-interest rate policy unchanged.

The BOJ left a projected net surplus of 1.9 trillion yen in the money market after draining one trillion yen in funds. The central bank later drained 500 billion yen in the early afternoon to leave a net surplus of 1.4 trillion yen.

In the near term, the dollar was expected to stay capped by exporters' sell orders rumoured to sit above 106.10 yen, while it was supported slightly above 105.00 yen, where bids from Japanese government-affiliated financial agencies were rumoured. The next support was seen near 104.65/75 yen.

Most traders expected quiet trade to prevail later in European trading and for most of this week due a market holiday in the United States on Monday and ahead of Tokyo's G7 meeting of finance ministers and central bank governors on Saturday. -Reuters