Dollar down against yen despite Japanese measures

NEW YORK: The dollar traded near a record low against the yen on Wednesday as traders shrugged off a program that urges firms to exchange yen for foreign assets, a development that left some on alert for more market intervention.

Moody's Investors Service's one-notch downgrade to Japan's credit rating also failed to reverse yen gains, as worries about global growth fed risk aversion.

The dollar was last down 0.2 percent at 76.51 yen, close to an all-time low just beneath 76 yen.

Japan's measures are aimed at prompting overseas mergers and acquisitions. This would encourage companies to sell yen for foreign currencies. The Finance Ministry also said it would require financial firms to report on their trading positions.

Citigroup currency strategist Todd Elmer said the new scheme "treats the symptoms, not the underlying cause (of yen strength), so it's not going to have any impact whatsoever in supporting dollar/yen."

Yen gains are a function of worries about global growth, particularly with markets concerned the US economy may be on the brink of recession.

But while the yen is a favorite shelter for investors who want to exit trades in higher-yielding but riskier assets, yen appreciation hurts Japan's economy by undercutting exports.

Societe General strategist Sebastien Galy said that Japan "is laying the ground for far more aggressive policy."

He said the dollar may grind lower in the near term and could break through its record low. "But when it does, the next shoe will drop," he said.

Bank of Japan data suggested Japan sold roughly 4.5 trillion yen in currency intervention on Aug. 4, its biggest-ever one-day action, but it has had limited effect so far.

DURABLE GOODS UP, BUT FOCUS STILL ON FED

A surge in US orders for long-lasting durable goods eased some fear about the US economy. Currencies from Canada and Mexico got the biggest boost, thanks to strong US trade links.

The euro edged 0.2 percent to $1.4470 near the top of a tight $1.40-45 range that's held since mid-July. A weaker-than-expected survey of German business sentiment helped to cap gains.

Stocks also rose and Treasuries weakened after the US Congressional Budget Office predicted a decline in the US deficit in the coming years, but currency impact was minor.

Overall, trading in most currency pairs was confined to tight ranges ahead of a Friday speech by Federal Reserve Chairman Ben Bernanke. Markets expect he may hint at new plans to stimulate US growth.

Wednesday's data notwithstanding, investors still fear the US economy is near recession and may need another jolt of Fed stimulus. Bernanke used last year's annual Jackson Hole speech to hint at another round of quantitative easing, which eventually pumped $600 billion into the financial system.

"If Bernanke does take more decisive measures, the dollar should sell off broadly, as it would support risk-seeking behavior," said BNP Paribas strategist Kiran Kowshik.

He said markets are warming to the idea that the Fed could start buying longer-dated debt, which would hold down long-term interest rates and encourage spending.

Copyright Reuters, 2011