Currency intervention works only in short term, Japanese diplomat says

Bank of Japan report sinks dollar vs. yen

By Gertrude Chavez
Reuters
Tuesday, March 16, 2004

a href=http://www.reuters.com/newsArticle.jhtml?type=topNewsamp;storyID=4579962...

NEW YORK -- The dollar plummeted against the yen on
Tuesday, reeling from a report late in the previous session
that Tokyo could halt selling yen for dollars by the end of
March.

Japanese officials denied any change in currency policy,
although a comment by Bank of Japan Governor Toshihiko
Fukui that irregular currency moves had abated was
interpreted by some as indicating a more relaxed stance on
the yen's strength.

Japan's Nikkei Financial Daily reported late on Monday
that Japan may stop currency intervention aimed at
weakening the yen to boost exports.

quot;The Bank of Japan isn't there, so the dollar's going to
fall,quot; said Ralph DelZenero, vice president for foreign
exchange at Bank One in Chicago. quot;Markets are trying to
see what's down there and they're not seeing Japanese
names. They think the dollar is worth closer to 100 yen
than 110,quot; he added.

By midday in New York, the dollar had fallen to a
two-week-low below 109 yen. The euro also dropped more
than 1 percent against the Japanese currency, to 133.58.

The euro, however, pared most of its gains against the dollar,
trading nearly flat at $1.2264, hurt by the single currency's
losses against the yen.

quot;There's wholesale liquidation of euro/yen shorts. It's also a
straightforward correlation -- bond market down, equities up,
euro/dollar down,quot; said Phillip Capone, vice president for FX
derivatives at Fortis Bank in New York.

The Dow Jones industrial average was up 0.4 percent, while
U.S. Treasuries were trading lower, with yields on the
benchmark 10-year note inching up to 3.79 percent.

The dollar was off against the Swiss franc at 1.2774 francs.
Sterling traded up 0.3 percent at $1.8110.

Analysts say speculative yen short positions may be inhibiting
Japan's near-term intervention tactics. Short positions are
effectively bets that a specific currency will decline.

According to JP Morgan, short yen positions are now twice the
average, and intervention at a time when yen accounts are
looking stretched would work against speculative positioning.
Japan, it added, may prefer to support the dollar once these
positions have been liquidated.

The market was awaiting the outcome of Tuesday's Federal
Reserve policy meeting. Expectations are for U.S. interest
rates to stay at 1 percent, but the Fed's accompanying outlook
statement should be crucial to the dollar's direction, analysts
said.

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