FOREX-Dollar dips but supported by safe-haven appeal

Published: February 19, 2009

* Dollar trims gains vs yen and euro, off Wednesday’s highs

* Yen pressured due to worry about Japan’s economy

* BOJ keeps interest rates unchanged at 0.10 pct

By Satomi Noguchi

TOKYO, Feb 19 (Reuters) – The dollar dipped on Thursday after hitting a six-week high against the yen and a three-month peak versus the euro, but it stayed firm as U.S. efforts to tackle the housing crisis boosted its safe-haven appeal.

The yen is coming under pressure due to worries about the Japanese economy — which suffered its deepest contraction in more than three decades in the latest quarter — and political uncertainty as voter support for Prime Minister Taro Aso sinks. [ID:nECONJP] [ID:nPOLJP]

The Bank of Japan left its key policy rate unchanged at 0.10 percent on Thursday, as expected, but extended the deadline for its buying of commercial paper to help corporate funding as it battles the credit crunch, with the economy in its deepest slump in more than the three decades. [ID:nTKU003268]

With little room to cut overnight rates after bringing them down to near zero late last year, the BOJ is focusing on ways to improve funding conditions for financial institutions and companies in an economy hit hard by the global slump.

“There is an emerging view that the yen may not be so appropriate to buy, unlike before, at times of risk aversion,” said Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Securities.

Political uncertainty in Japan was adding to gloom about the economy, in contrast with the U.S. and European governments’ swift moves to combat the global recession, traders said.

“The U.S. was the first to be hit hard by the crisis but could also be the first to get out of it, with quick policy actions,” Shioiri said.

The dollar dipped 0.4 percent from late New York trade to 93.45 yen JPY but stayed within reach of Wednesday’s high of 93.96 yen on trading platform EBS, the highest since Jan. 7.

“Credit default swaps on Japanese sovereign debt have jumped, keeping those who believe the dollar/yen rate has a strong correlation with CDSs reluctant to pick up the yen,” said a portfolio manager at a Japanese asset management company. Five-year CDS on Japanese government debt hit a record high of 130 basis points on Wednesday as political uncertainty and worries about the country’s fiscal position grew. The sovereign CDSs had not traded by Thursday afternoon in Asia, with indicated prices of 90-120 basis points. [ID:nT151751]

The euro edged up 0.1 percent against the yen to 117.60 yen .

The euro climbed 0.4 percent to $1.2585 , recovering from a three-month low of $1.2513 touched the previous day. But worries about euro zone banks with exposure to struggling Eastern European countries kept investors wary of the euro, capping its gains, traders said.


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