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Dollar slips as intervention nerves linger

TOKYO: The dollar drifted below 107 yen in early on Thursday trade in Tokyo, reacting to some bright signs for Japan's economy, but its advance was limited by the prospect of further BOJ intervention to keep the yen in check.

The dollar was at 106.80/90 yen against 107.21 yen in US trade late on Wednesday, having moved in a tight range of 106.87 to 107.27 yen.

News that the Bank of Japan had followed through on its yen-selling intervention in Tokyo on Wednesday by later stepping into the currency market in European hours provided the euro with a firm footing.

Bankers said the central bank had bought euro for yen and the Finance Ministry later confirmed it had taken "necessary steps" in overseas trade.

"The yen-buying mood is still there, but many dealers do not have the courage to drive the dollar below 106.70 yen on caution over BOJ intervention," a Japanese city bank dealer said.

"The market is very careful about building yen-longs now, but the momentum to push the yen higher is clearly picking up."

The market is focusing on Japan's October-December gross domestic product data due out on Monday, with expectations of a decent figure growing after Thursday's stronger-than-expected capital spending by Japanese firms, dealers said.

The Ministry of Finance said on Thursday that firms cut spending on plant and equipment by 0.7 percent in the October-December quarter from the same period a year earlier.

It was the eighth straight quarter in which capital investment at all firms had dipped from a year earlier, but it was a sharp improvement over the 9.6 percent drop in July-September.

Dealers said the dollar stayed under pressure after the data, but many participants were reluctant to sell it actively. Dealers said overseas operators were showing strong needs to unwind their dollar-long positions against the yen. Such sales should put a lid to the greenback above 107 yen.

Sales by Japanese exporters were expected to emerge between 107.50 and 108 yen. Strong support was seen at 106.50 yen, dealers said.

But yen-buying could by spurred if the Nikkei average advances further in the afternoon. The stock market benchmark rose 118.74 points or 0.60 percent to 19,885.54 by midday.

Finance Ministry data showed on Thursday that Japanese investors sold a net 272.6 billion yen of foreign bonds, based on contracts, in February, compared with net sales of 476.0 billion yen a month earlier. Meanwhile, foreigners bought a net 859.6 billion yen in Japanese stocks.

The euro was under selling pressure, with resistance seen around 103.20 yen, but falls were likely to be limited on caution over the possible BOJ intervention, dealers said.

Vice Finance Minister Nobuaki Usui told Reuters that Japan intervened in the forex market overseas on Wednesday.

He said Japan will continue to take decisive steps in the forex market if needed.

Bankers said the central bank had acted alone in the European market on Wednesday by buying the euro, possibly when it dipped below 102 yen.

The euro fell to around a low of 101.70 yen in Europe on Wednesday, but rebounded sharply to around 103 yen.

The euro was quoted at 102.80/90 yen compared with a US close of 102.98 yen on Wednesday. The euro stood at $0.9620/25 compared with $0.9605.

Elsewhere, the Australian dollar AUD rose after employment data came in above a market consensus.

February employment grew by 59,100 jobs, while the unemployment rate was at 6.7 percent compared with market expectations of a rise of 25,000 jobs and the jobless rate at 6.8 percent.

The Aussie stood at $0.6127/32 from a US close of $0.6086.Currency bid prices. All data taken from Reuters with percent change calculated from the daily US close. -Reuters