The dollar slipped against the yen on Friday in cautious trade before key jobs data that is expected to paint an even bleaker picture of the US labour market. The US currency hit a one-month high against the yen on Thursday on a rally in US shares led by hopes that the government rescue plan for banks might include suspension of a key accounting rule, thawing investors' aversion to risk.
But analysts warned the slight recovery in risk appetite probably won't be sustained as the health of the global economy remained severe. "Even if an accounting rule change is realised, it would not be a solution to the fundamental problems in the financial system," said Yuichiro Nakamura, currency dealer at Shinkin Central Bank. "I don't think it would help US stocks in the mid- and long-term, so risk aversion will likely stay in the currency market."
In late US trade on Thursday, a source familiar with the government's thinking said that the Treasury department and the US Securities and Exchange Commission were not discussing suspending the fair value accounting rule. Such an accounting fix could prevent banks from having to broadly mark down all assets to the prices a government-run "bad bank" might pay.
The Obama administration is expected to outline its bank rescue plan next week. Investors refrained from taking large positions in Tokyo as data is expected to show the United States shed more than half a million jobs in January. US non-farm payrolls likely shed 525,000 jobs, following 524,000 jobs lost in December, a Reuters poll showed. The unemployment rate is seen at 7.5 percent, compared with 7.2 percent a month earlier.
"The dollar probably won't move sharply unless the jobs report shows a significant deterioration, as investors are bracing for details on the US bank rescue plan next week," said Akira Takeuchi, treasury manager at Chuo Mitsui Trust and Banking. The dollar slipped 0.3 percent to 90.85 yen from late US trade on Thursday, when the US currency hit a one-month high above 92 yen.
The euro slipped against the dollar after the European Central Bank kept interest rates at 2 percent but ECB President Jean-Claude Trichet signalled the central bank would probably resume its rate cutting cycle in March. "Worries about the effects from economies and currencies in eastern and central Europe will also continue to weigh down the euro," he said.
Russia said on Thursday that it would increase stakes in state banks in coming months. On Wednesday, rating firm Fitch downgraded Russia's sovereign ratings, while Kazakhstan's central bank decided to devalue its currency. The euro was down 0.1 percent at $1.2772 and fell 0.5 percent to 116.05 yen. Sterling steadied at $1.4603 after having risen on Thursday when the Bank of England cut interest rates to a record low of 1.0 percent, which was seen helping the faltering economy.