Dollar flat against yen as market takes breather

TOKYO: The dollar was flat against the yen in Asia on Wednesday as the market took a breather and as stocks rebounded following a pledge by the US Federal Reserve to maintain its super-low interest rates.

The greenback traded at 77.00 yen in Tokyo morning trade, little changed from 76.94 yen in New York late Tuesday.

The euro was also rangebound against the dollar and the yen. The European common currency inched down to $1.4357 from $1.4374 while it edged higher to 110.56 yen against 110.50 yen.

Tokyo's Nikkei stock average was up, giving relief after financial markets were roiled by a bleak economic outlook on both sides of the Atlantic amid mounting public debts.

The US stock market staged a last-minute rally in a volatile session, after the Federal Reserve said that it expected to keep interest rates near zero for at least the next two years in a bid to counter economic weakness.

US growth this year had been "considerably slower" than expected and "downside risks to the economic outlook have increased," said the policy-setting Federal Open Market Committee.

After a one-day meeting in Washington, the FOMC said economic conditions were likely to warrant "exceptionally low" rates "at least through mid-2013".

The dollar weakened against the euro, yen and Swiss franc overnight.

Teppei Ino, analyst at the Bank of Tokyo-Mitsubishi UFJ, said Wednesday's "stocks rebound prompted investors to buy back currencies such as the euro and Australian dollar that had been heavily sold in a risk-aversion move".

"The Fed showed a clear (interest rate policy) target, and its policy direction is seen to suggest credit easing rather than tightening," Ino said.

"But the market now needs fresh news to sell the dollar further beyond the current levels."

Japan's Finance Minister Yoshihiko Noda reiterated Wednesday that he would "closely watch market movements".

Tokyo, worried that the yen's strength hurts Japanese exporters, intervened last week, selling the unit, and caution about whether it may step back into the forex market underpinned the dollar's downside against the yen, dealers said.

Meanwhile, the euro's gain against the dollar was tempered by lingering concern over the eurozone sovereign debt crisis, dealers said.

The European Central Bank said Monday it would resume purchases of eurozone government bonds to ease pressure on the weakest, notably Italy and Spain, whose borrowing costs have soared in recent weeks.

ECB chief Jean-Claude Trichet on Tuesday called on European governments to "do their duty" in reducing public deficits and stabilising their finances.

Ino said: "The ECB is working hard to stop the eurozone economy from bleeding. But we never know how long they can sustain that and the problem may even get worse."

Copyright AFP (Agence France-Presse), 2011