23/09/2003 11:40
The dollar slid to a three-year low against the yen for a second day on Tuesday as the market tested Japan's pain threshold following a weekend call by Group of Seven countries for more flexible exchange rates.
A Japanese holiday for the Autumnal Equinox day thinned trading, but yen bulls were emboldened by the apparent absence of dollar-buying intervention by the Bank of Japan.
The dollar slipped almost one percent to 111.25 yen in the European session, breaking through lows hit on Monday as dealers interpreted the G7's call for more flexible currency policies as a call for an end to Asia's dollar-buying intervention.
"Investors are still trying to work out what the G7 communique actually meant and are waiting to see if Japan intervenes," said Paul Robson, economist at Bank One.
The euro also fell to its lowest in over two weeks against the yen but retained a firm footing against the dollar, at $1.1475 -- just short of Monday's eight-week high.
Comments from Japan's top financial diplomat Zembei Mizoguchi that the yen's rise was too rapid did inject some wariness into the market.
Mizoguchi, attending IMF meetings in Dubai, said the yen's recent surge had been partly due to speculative buying and Japan would act as needed to stem disruptive exchange rate moves.
JAPAN FOCUS
While the risk of Japanese intervention was noted, traders noted the Bank of Japan appeared not to have made any attempt to stem the yen's latest surge.
"They have been saying this for the past six big figure moves (in dollar-yen), and there's been little or no physical intervention," said a Singapore-based trader.
"The BOJ knows they will be playing into the hands of the speculators. They will wait until the market is nicely short before intervening."
Japan is concerned that a rapid rise in the yen could jeopardize the country's tentative export-led recovery and has spent some nine trillion yen in currency intervention already this year.
Some analysts said the Bank of Japan was unlikely to exploit the thin market conditions on Tuesday, but there was an incentive for them to prop the dollar up over the next week.
"Their incentive will be that they want to help Japanese banks close their fiscal half-year (Sept 30) on a dollar/yen that's higher because that will look good on their books," said Jan Lambregts, head of Asia-Pacific research at Rabobank in Singapore.
The Swiss franc was less volatile, trading near 1.3530 after a spike to early August highs on Monday.
A Japanese holiday for the Autumnal Equinox day thinned trading, but yen bulls were emboldened by the apparent absence of dollar-buying intervention by the Bank of Japan.
The dollar slipped almost one percent to 111.25 yen in the European session, breaking through lows hit on Monday as dealers interpreted the G7's call for more flexible currency policies as a call for an end to Asia's dollar-buying intervention.
"Investors are still trying to work out what the G7 communique actually meant and are waiting to see if Japan intervenes," said Paul Robson, economist at Bank One.
The euro also fell to its lowest in over two weeks against the yen but retained a firm footing against the dollar, at $1.1475 -- just short of Monday's eight-week high.
Comments from Japan's top financial diplomat Zembei Mizoguchi that the yen's rise was too rapid did inject some wariness into the market.
Mizoguchi, attending IMF meetings in Dubai, said the yen's recent surge had been partly due to speculative buying and Japan would act as needed to stem disruptive exchange rate moves.
JAPAN FOCUS
While the risk of Japanese intervention was noted, traders noted the Bank of Japan appeared not to have made any attempt to stem the yen's latest surge.
"They have been saying this for the past six big figure moves (in dollar-yen), and there's been little or no physical intervention," said a Singapore-based trader.
"The BOJ knows they will be playing into the hands of the speculators. They will wait until the market is nicely short before intervening."
Japan is concerned that a rapid rise in the yen could jeopardize the country's tentative export-led recovery and has spent some nine trillion yen in currency intervention already this year.
Some analysts said the Bank of Japan was unlikely to exploit the thin market conditions on Tuesday, but there was an incentive for them to prop the dollar up over the next week.
"Their incentive will be that they want to help Japanese banks close their fiscal half-year (Sept 30) on a dollar/yen that's higher because that will look good on their books," said Jan Lambregts, head of Asia-Pacific research at Rabobank in Singapore.
The Swiss franc was less volatile, trading near 1.3530 after a spike to early August highs on Monday.
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