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Greenback dips on

Japan rate jitters

NEW YORK: The dollar slumped against the yen on Friday and retreated from 14-month highs against the mark after fears of imminent higher interest rates in Japan ignited a flurry of yen buying, traders said.

The mark also continued its slippery slide against the yen, falling at one point to a seven-month low of 68.93 yen.

The U.S. currency managed to claw its way back from 105.15 yen, a six-week low, to end at 105.63/68 against 106.32/39.

"The big focus of the market has shifted from U.S. and German interest rates to Japan," Ben Strauss, assistant vice president at Bank Julius Baer and Co, said.

The dollar also ended lower at 1.5281/89 marks compared with an opening level of 1.5329/36.

Sparking the selloff in dollar/yen was a report in the Asahi Shimbun, a major Japanese newspaper, that the Bank of Japan had started to consider possible changes to its accommodative credit policy.

A senior BOJ official denied the report but talk of higher Japanese rates and a recovery in Japan's economy prompted U.S. hedge funds and others to unwind short-yen positions, and the yen-buying frenzy spilled over into U.S. trading.

European traders said there was talk the BOJ bought dollars through the Bank of England in London, although neither central bank would confirm those reports.

Traders said the BOJ -- which also reportedly bought dollars for yen overnight in Asia -- wants a stable dollar/yen rate ahead of next week's Golden Week holidays in Japan.

Japanese traders will be off for national holidays next Monday and Friday.

"People are a little bit nervous about what's going to happen Sunday night. Japan is out on Monday but BOJ (may) leave (dollar-buy) orders," Strauss said.

Pre-weekend position-squaring on worries of possible BOJ intervention early next week lifted the dollar back above key 105.50 yen ahead of the close.

"Last night was a wake-up call to the market, the BOJ reminding people that they have these intervention agreements. They were putting the market on warning," Strauss said.

Despite the dollar's losses against the yen, many traders said the U.S. currency's uptrend against the mark remained on track for arrival at its ultimate destination of 1.55 marks.

Dollar/mark dipped to a session low of 1.5235 marks but managed to regain key support of 1.5250 by the end of trade.

Dollar/mark may correct below 1.52 marks before heading higher toward 1.5550, a 50 percent retracement of the dollar's slide from 1.76 to 1.34 marks, traders said.

The mark will continue to be under pressure from the yen, meanwhile. Mark/yen struggled back up from below 69.00 yen to end at 69.12 after rising to 69.23 on short-covering. "69 basically held here but the view is that we still go lower. There are people looking lower down at the 67 level," Cynthia Johnson, vice president of foreign exchange at the Canadian Imperial Bank of Commerce, said. Against the Swiss franc the dollar ended lower at 1.2357/64 against 1.2370/80.

The dollar was Canadian $1.3604/09 compared with $1.3603/08.

Sterling ended at $1.5121/29 compared with $1.5068/75.

The Australian dollar was $0.7900/05.-Reuter