Dollar Weakens Toward 117 Yen in Late Tokyo

Tokyo, Jan. 31 (Jiji Press)–The dollar lost ground toward 117 yen in Tokyo late Tuesday, falling prey to position-adjusting sales ahead of the Federal Reserve’s closely awaited policy meeting later in the day.

The greenback stood at 117.16-19 yen at 5 p.m., down from 117.37- 40 yen at the same time Monday. The U.S. currency traded most actively at 117.71 yen, against Monday’s 117.35 yen.

The euro stood at 1.2108-2111 dollars at 5 p.m., unchanged from late Monday, and at 141.88-92 yen against 142.14-18 yen.

After touching a four-week high of 117.79 yen in early trading, the dollar’s upside became heavy, with active transactions held back before the Federal Open Market Committee meeting, where the Fed is widely expected to decide to raise key interest rates for the 14th straight time.

Profit taking and selling by Japanese exporters prevented the dollar from topping 118 yen, while buying by Japanese importers supported its downside above 117 yen, traders said.

The U.S. currency, after being confined to a narrow range around 117.50 yen for most of the day, quickly declined with the start of European trading hours, hitting the day’s low of 117.14 yen in late trading as position-adjusting sales increased just before the FOMC meeting. The dollar’s late setback was led by the euro’s fall against the Japanese currency, market sources said.

With another 0.25-percentage-point rate hike by the Fed already been factored in, traders’ eyes are glued to the U.S. central bank’s statement to be issued after the meeting, which may include hints on the policy outlook after Ben Bernanke replaces Alan Greenspan as Fed chairman on Wednesday.

Speculation is growing among currency traders that the statement may not go any farther than showing the Fed’s stance of closely watching economic data and provide no indication about the fate of its rate hike campaign that started in June 2004.

“Because this would be the last FOMC meeting for Greenspan and the financial markets are becoming very nervous about its outcome, the Fed will likely avoid saying something stimulative in the statement, staying away from pessimistic wording about the state of the U.S. economy,” said Kengo Suzuki, assistant manager at Shinko Securities Co.’s Foreign Exchange Department.

“In that case, a sense of relief may trigger a fresh wave of dollar buying,” Suzuki said.

Meanwhile, some analysts said it would be difficult for the dollar to top the key technical line of 118 yen without any suggestion about a further rate hike in the FOMC statement.END