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Dollar,yen end softer in Europe

LONDON: The dollar ended softer against the Japanese yen here as concern about a rise in Japanese interest rates was refueled by comments from Bank of Japan governor Yasho Matsushita and dealers grew wary of a sharp retracement of the mark/yen cross rate.

Matsushita cited overly loose credit policy as responsible for the "bubble" economy in the 1980's. Analysts said that shows the Bank will be keen not to make the same mistake again.

The dollar was buoyed against the mark, meantime, and held narrow ranges just shy of 1.5100. The mark regained poise on its cross rates as tomorrow's Bundesbank meeting is awaited.

At 1528 GMT, the dollar was at 108.15/20 yen compared with 108.36/39 late Monday. Against the mark, it was at 1.5103/09 compared with 1.5095/5100 late yesterday.

The comments from Matsushita were the latest in series of statements which appear to confirm that ultra-low Japanese interest rates have troughed and the next move will be up, analysts said. They also coincide with scattered speculation the U.S. and Japan may wish to limit dollar/yen gains to 110.

"With the dollar/yen approaching 110 amid murmurings from Detroit, the Clinton/Hashimoto sumit is seen as a little more interesting," said Joe Prendergast, analyst at Merrill Lynch.

U.S. president Bill Clinton meets Japanese prime minister Ryutaro Hashimoto in Tokyo tomorrow. There has been some growing concern from the U.S. automobile lobby that excessive dollar/yen strength would once again crimp the competiveness of U.S. carmakers relative to their rival Japanese firms, analysts said.

Dealers are also eyeing the Group of Seven finance ministers and central bankers meeting in Washington on Sunday, although most believe the ministers will be happy to simply express satisfaction at recent developments in the foreign exchange markets, namely a stronger dollar and weaker mark and yen.

Mark/yen skidded to a one-month low, meantime.

Some chartists said the cross is riding for a steep fall, with a break below four-month-old trendline support at 71.35/40 likely to accelerate the slide.

The mark steadied on its European cross rates after its recent steep decline but failed to make any real headway, said dealers. Three of the 15 analysts polled by Reuters expects the Bundesbank to cut interest rates at tomorrow's meeting.

"The mark is just consolidating for now, but there are further losses to come before this move is complete," said a trader at a Swiss bank here. "The Bundesbank is happy with a gradually easing mark and will make sure it remains that way."

The pan-German March consumer price index rose an expected 0.1 percent during the month and 1.7 percent year-on-year.

"We expect the Bundesbank to cut its discount rate by 25 basis points at one of the next few meetings, using the smaller- than-usual cut to avoid outright speculation it is the last easing in the cycle," saod Prendergast at Merrill.

Elsewhere, there was little reaction to news of a 0.5 percent drop in March U.S. industrial production. Analysts said the data was distorted by a strike at General Motors and excluding output of autos and auto parts production rose 0.3 percent.Reuter