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Dlr eases as market ponders yen mention at G7

TOKYO:The dollar dropped below 105 yen here on Friday amid doubt that Saturday's Group of Seven meeting will express heightened concern about the effect of the strong yen on Japan's fragile economic recovery.

If the G7 issues a communique like the one issued in September, or drops any mention of "shared concern," dealers expect the yen will resume rising.

This speculation led foreign operators, especially US banks, to liquidate long-dollar positions, causing the US currency to slip in value, with the drop exaggerated by the market's thinness ahead of the meeting in Tokyo of G7 finance ministers and central bankers.

In late afternoon trading, the US currency stood at 104.94/97 yen, down from 105.33 yen at the US close on Thursday.

Comments from Economic Planning Minister Taichi Sakaiya that a stronger yen was not necessarily detrimental for the Japanese economy also triggered liquidation of dollar-long positions, dealers said.

The yen also strengthened on Friday against the euroe dollar dropped below -Reuters . The joint currency of 11 European nations was quoted at 106.80/95 yen, against 107.11 yen in New York late on Thursday.

In the near term, dealers said the dollar's support was seen relatively firm at 104.80 yen, where Japanese institutional investors are rumoured to have placed bids. Additional support is seen at 104.50, then at 104.30 yen.

The currency market has been obsessed with the question of whether the G7 will again offer Japan verbal support in its fight to tame the yen, and if they do, how strong the expression will be.

Yet whatever the outcome, dealers said, the market will use it as an excuse to unwind dollar positions accumulated over the past several weeks.

The yen was buoyedpartly by US Treasury Secretary Lawrence Summers' comments on Thursday, urging Japan to concentrate on domestic demand and structural reform to prop up its still fragile economic recovery.

US investment adviser Richard Medley, after meeting top Japanese and other G7 officials this week, told Reuters that he expected the statement to mirror September's expression that the group "shared Japan's concern about the potential impact of the yen's appreciation for the Japanese economy and the world economy".

Finance Minister Kiichi Miyazawa said he was sure his G7 counterparts understand Japan's concern but did not know whether they will again formally declare that concern.

Shuji Kawanabe, vice president at JP Morgan in Tokyo said: "Mention of the yen will likely not be anything beyond or below what was said in the September communique. Rather, I think the focus will be more on the euro, especially on the widening US trade deficit with Europe."

The US trade deficit ballooned in November to a record $26.50 billion, from $25.56 billion the previous month.

The widening US deficit with Japan was expected by some dealers to reduce chances of the G7 this weekend strongly endorsing Japan's efforts to weaken the yen. Other major currencies held to tight ranges, although they came under slight pressure against the yen.

Growing expectations of a rise in British interest rates, particularly after stronger-than-expected producer price data, encouraged buying of sterling. But it was later weighed down as the yen strengthened across the board, dealers said.

The pound was at 173.59/71 yen in thin trade against 174.19 yen in New York late on Thursday.

Currency markets are on alert for further comments ahead of the weekend G7 meeting.

Finance minister Kiichi Miyazawa meets EU Council of Ministers chairman Joaquim Pina-Moura, who is also Portuguese finance minister,

Focus was also on meeting of Japan Prime Minister Keizo Obuchi, US Treasury Secretary Lawrence Summers and Federal Reserve Chairman Alan Greenspan.-Reuters