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Dollar unchanged vs yen;euro on defensive in Tokyo

TOKYO: The dollar was barely changed against the yen in choppy trade by midday Tokyo on Wednesday, after early gains on demand related to Japan's fiscal year-end gave way to profit-taking, dealers said.

At 0304 GMT, the dollar was quoted at 120.29/39 yen compared with 120.33/43 yen in late New York on Tuesday. The euro was quoted at $1.0700/09 versus $1.0717/27.

The euro briefly fell below $1.07 in Tokyo as it maintained a weak tone on rate-cut speculation stemming from poorer growth prospects in Europe and as NATO rejected a Yugoslav proposal to end the conflict there. Substantial commercial demand was detected at the 0100 GMT retail fixing, as Japanese banks and corporations raised dollars for fiscal year-end book closings on Wednesday to write off losses incurred from overseas operations.

According to dealers' estimates, some $3 billion in dollar demand was expected from Japanese banks on Wednesday.

The dollar extended its gains after the fixing, rising to a high of 120.98 yen. Buying related to the setting up of fresh investment trusts also pushed up the greenback, dealers said.

"There was huge volume today that we haven't seen for some time," a dealer at a major city bank said.

But gains were offset by selling from Japanese exporters and persistent profit-taking from overseas fund operators, dealers said. Overseas operators had been building long positions in anticipation of dollar demand for the fiscal year close.

The dollar's rise was also blocked by sales by an Asian central bank to prevent the triggering of options rumoured to have a strike price at 121 yen, some dealers said.

Dealers said speculation that fresh overseas investments by Japanese investors will materialise after the Tokyo market closes

"Dealers expect fresh money to be invested overseas will emerge after the fiscal year formally closes (later this afternoon). So that will keep the dollar supported," a dealer at a top city bank said.

Dealers said they will also keep an eye on the level of the Nikkei stock average at the close of the 1998/99 fiscal year.

Meanwhile, heightened speculation that the European Central Bank (ECB) will cut interest rates at its governing council on April 8 pushed the euro lower, especially against the dollar.

By midday, the euro fell to a low of $1.0691, nearing the unit's life low of $1.0680 hit in electronic brokering on Monday.

The European Commission on Tuesday cut its forecast for 1999 economic growth in the 11-nation euro zone to 2.2 percent from 2.6 percent, saying the region had been hit harder than expected by global economic turmoil.

Germany, the region's largest economy, would expand by 1.7 percent, the EC said.

The Kosovo crisis continued to pressure the European currency.

Russian Prime Minister Yevgeny Primakov appeared ready to broker a deal and Yugoslav President Slobodan Milosevic hinted at one if NATO air raids stopped.-Reuters