Dollar slightly lower after Japan statement on yen

TOKYO: The dollar fell slightly versus the yen after Japan unveiled a $100 billion credit line to help companies deal with the impact from a strong yen but shied away from stepping into currency markets.

The dollar quickly came off an intraday high of 76.88 yen hit after Moody's cut its rating on Japan's debt and as its crosses came under broad pressure after S&P futures fell 0.8 percent and gold gained 0.9 percent on renewed risk aversion.

The new credit line will facilitate companies' acquisitions of overseas firms and their procurement of energy and resources from abroad, but analysts were sceptical the measures will calm markets after the yen hit a record high of 75.941 last week.

"The scheme treats the symptoms not the underlying cause," said Todd Elmer, currency strategist at Citi in Singapore.

"So it's not going to have any impact whatsoever in supporting dollar/yen, and given that there have been some expectations for stronger measures ... I wouldn't be surprised if dollar/yen traded lower on the day," he said.

Japan also said it would ask major financial firms to report on FX posiions held by dealers for the period to the end of September. The potential impact from this is hard to gauge at this point, however, since it is unclear what action Japanese authorities would take with such information, traders said.

The dollar last traded slightly lower at 76.62 , having dipped to its session low of 76.53 after the Japanese government announced its plan. The pair continued to be tethered to a slim band with bids seen below 76.50 and offers from exporters emerging above 76.80.

Moody's downgraded Japan by one notch to Aa3, blaming a build-up of debt since the 2009 global recession and revolving-door political leadership that has hampered effective economic strategies. Still, such cuts have had scant effect on yields as the vast bulk of Japanese debt is owned by the Japanese themselves.

RISK-CURRENCIES DOWN

The euro and other risk-sensitive currencies such as the Australian dollar were under pressure as Asian bourses failed to track hefty gains made by Wall Street overnight.

The euro came within a whisker of $1.4500 before trading down 0.2 percent at $1.4407 . Traders cited ongoing concerns that the Greek bailout package may be in jeopardy and about the state of the global economy after weak data out of Germany.

A minister in Angela Merkel's conservative party propelled Germany into a euro zone debate about guarantees for Greek aid, backing a demand for collateral by Finland, which said it could quit the bailout programme if its request was turned down.

Commodity currencies gave up some of the strong gains they made the day before as manufacturing data in China and Europe was less grim than feared. The Australian dollar was down 0.2 percent at $1.0495, having climbed more than a cent to around $1.0535.

The Aussie was trapped between resistance at its 21-day moving average around 1.0554 and support looming around $1.0331, its 200-day moving average.

"The market is becoming more pessimistic about the economic outlook and is responding by pricing in a greater chance of QE3," said Bricklin Dwyer, an economist at BNP Paribas.

Some investors are hoping Federal Reserve chairman Ben Bernanke will use his speech at the central bank's annual symposium in Jackson Hole, Wyoming, on Friday to prepare markets for more stimulus.

Last year, Bernanke used the meeting to bring up the idea of the central bank's $600 billion bond-buying programme that became known as QE2. That pumped money and confidence into markets.

"The reality is that we are getting more data confirming a slowdown in manufacturing activity and a dead cat bounce in the (US) housing sector," BNP Paribas' Dwyer wrote in a client note.

But many Fed watchers, think Bernanke will be more circumspect and the market could be disappointed.

"I think that Jackson Hole may actually be a huge non-event with limited impact on dollar/yen," said a trader for a Japanese bank who spoke on condition of anonymity.

"Surprisingly, the only effect from it may be renewed pressure on the euro as the market's focus will turn to the euro zone debt problems," said the trader.

The Swiss franc failed to benefit from risk aversion and was almost unchanged on the day at 0.7928 as investors remained wary that the Swiss National Bank could reenter markets to curb recent franc strength.

The SNB has cut interest rates to zero, flooded the banking system with francs and intervened in the forward market to make returns on francs less attractive to potential investors.

Copyright Reuters, 2011