Yen eases slightly after short-lived 'tankan' rally

The yen eased against the dollar on Friday, failing to hold gains made on a stronger-than-expected reading for the Bank of Japan's "tankan" survey of business sentiment.
The Japanese currency had shot up about 0.3 percent after the key diffusion index of the closely watched survey came in at plus 26, higher than market forecasts for a reading of plus 23. The number was the strongest since May 1991.
Analysts said the yen's gains were capped near overnight highs around 109.80 yen, with Japanese importers seen buying dollars near that level in Tokyo hours.
Traders pointed out that they survey showed sentiment was expected to slip to plus 21 in December, which added to market concerns about the pace of the Japanese economic recovery.
"The dollar was sold off on the 'tankan', but it had held around 109.80 yen overnight, so the dollar seems to be coming back on short-covering," said Yoshi Yanagisawa, manager of forex sales at State Street Bank in Tokyo.
The dollar was changing hands at 110.15/20 yen, around the same level as just before the release of the "tankan".
The US currency had traded at 110.05 yen in late New York trade after tumbling about 1 percent to 109.81 yen in a broad-based fall overnight driven by technical movements.
Although market players acknowledged that the 109-112 trading range the dollar/yen had been confined to all summer was slowly tightening, many doubted any significant trend would surface until prices broke out on either end.
The euro also regained losses, fetching around 136.80/83 yen after slipping to around 136.60 yen after the "tankan" landed. The latest level was little changed from late US trade.
The euro bought $1.2422/25, compared with $1.2432 in late US trade. It peaked at $1.2444 overnight, its highest level since mid-July.
The dollar suffered steep losses against a range of currencies on Thursday in technically driven trade after a breach of key chart levels unleashed a wave of selling.
Against this backdrop, the euro again surfaced as a currency of choice, looking to renew multi-month highs against the dollar, though a rise beyond $1.25 may take time, traders said.
Analysts said a debate between US President George W. Bush and Democratic presidential candidate John Kerry had minimal impact on the Tokyo market.
Market players also brushed aside other Japanese economic data that landed before the "tankan".