Dollar inches up against yen

20 May, 2006

The dollar edged up against the yen on Friday, erasing earlier losses on upbeat Japanese growth data, as investors felt that the dollar's sell-off in the past month may have gone far enough for now.
The yen initially rose after data showed gross domestic product in Japan grew 0.5 percent in January-March from the previous quarter due to resilient capital spending and domestic demand, beating market forecasts for a rise of 0.3 percent.
The result fanned expectations that the Bank of Japan will raise interest rates from near zero in coming months, which would likely narrow the yen's rate gap with other currencies.
But the yen's rally was short-lived due to caution about pushing the dollar down too low. The US currency has already fallen as much as 7 percent since the middle of April.
"Given such rapid moves in currencies in the past month, investors cannot decide what to do next," said Fumihiko Kawano, forex manager at Nomura Securities.
The yen has been rising partly in anticipation of the BOJ boosting rates, possibly in July.
The BoJ's monetary policy board left rates unchanged as expected after a two-day meeting on Friday.
For clues about the timing of the first rate increase since August 2000, the market will tune in to comments from BoJ Governor Toshihiko Fukui, who earlier this week played down speculation that the central bank could boost rates as early as June.
The dollar was up slightly on the day at 111.00 yen after falling as low as 110.43 yen on electric trading platform EBS soon after the release of the Japanese growth data.
Still, few in the market believe the US currency will extend gains much further.
"It's hard for it to rise sharply as market players can see dollar selling orders from Japanese exporters lined up above 111 yen," said a senior trader at a major Japanese bank. The euro rose to 142.55 yen from around 142.35 yen in late US trade on Thursday. It was little changed at $1.2840.

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