* Dollar holds a yen above 1995's 79.75 yen record low
* Japan's finance minister says intervention stance unchanged
* Dollar index little changed, euro in consolidation
By Charlotte Cooper and Masayuki Kitano
TOKYO, Oct 26 (Reuters) - The dollar held just a yen above
its 1995 record low against the Japanese currency on Tuesday,
prompting Japanese policy-makers to remind the market that Tokyo
might intervene if pushed to stop its currency from rising.
The dollar barely moved against a basket of currencies as the
euro failed to sustain gains the previous day back towards a
recent eight-month high, highlighting the fact that the greenback
is finding bouts of support.
The dollar's postwar record low of 79.75 yen set in April
1995 has become a focal point as the greenback has moved steadily
lower, hitting a 15-year trough at 80.41 yen on Monday, with
players wary that Japan may intervene if it nears 80.00 yen,
following Tokyo's first intervention in six years in September.
But tensions among G20 partners over competitive currency
devaluations have muddied the waters for Japan, which is worried
yen strength is harming its fragile economy but pledged along
with its G20 counterparts at the weekend to refrain from
competitive devaluations. []
Still, the same pledge also said advanced economies would be
vigilant against disorderly exchange rate movements, a phrase
Finance Minister Yoshihiko Noda was quick to point to on Tuesday
while saying Japan would take decisive steps on forex when
needed. []
"Everyone thinks intervention is a possibility, that it is an
option, but it is hard to say at what level that could occur,"
said a trader for a foreign bank in Tokyo.
The question was whether Japan had sufficient rationale to
intervene, given that falls in the dollar against the yen have
remained gradual and not been very rapid, he said.
"It could be pretty difficult to conduct intervention with
justification," he said.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a PDF on the G20's uneasy truce on currencies
and trade imbalances: http://r.reuters.com/nan99p
For an FX column on the Fed: []
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The dollar dipped as far as 80.66 yen <JPY=> on Tuesday
before edging back to stand slightly lower on the day at 80.79.
Partly because of wariness about Japanese intervention, the
currency pair has hugged narrow trading bands, pushing down its
one-month realised volatility to 10.2 percent, the lowest level
in more than two years.
The dollar was little changed against a basket of currencies
with the dollar index <.DXY> <=USD> at 77.07. The index has
support at 76.00-10 area, just below its Oct 15 low of 76.144
while resistance is seen at 78.40.
The Bank of Japan, which acts on behalf of the Ministry of
Finance, intervened on Sept.15 for the first time since 2004 to
sell the yen when it rose beyond 83.00 per dollar.
The greenback has fallen broadly since then as the market has
priced in more quantitative easing by the Federal Reserve,
highlighting the uphill battle Japan would face if it did
intervene.
Japanese exporters needing to convert their overseas earnings
are said to have sold dollars into even small dollar/yen rallies,
keeping the pair under downward pressure and prompting Nissan
Motor Co's <7201.T> chief operating officer to say on Tuesday he
had a "huge sense of crisis" about the strong yen.[]
Technically, chartists at JP Morgan said in a note that
dollar/yen was in a position for a test if not a break of the
1995 low. "Still, given the short-term oversold set-up, a choppy
downside bias remains likely," they said.
The euro eased 0.1 percent to $1.3947 <EUR=> after once again
failing to hold above $1.4000 on Monday and keeping intact a
familiar range roughly between $1.3700 and $1.4160 this month.
"It's tried a few times and failed. People are quick to
lock in profit these days," said Grant Turley, a strategist at
ANZ in Sydney.
The euro has support at around 1.3860, its low last Friday
and its 21-day moving average at $1.3866, though a break of which
could trigger a bigger correction.
With the Fed expected to pump more money into the economy as
early as next week but with no clear consensus still on how much
cash it will inject, analysts expect dollar pairs to stay choppy.
Keeping the market guessing, New York Fed President William
Dudley said whether an incremental or big bang approach to
asset purchases would work better depended on the economic
context. []
"The market's getting mixed signals from the Fed but
ultimately whatever they do they are going to be doing QE2," said
a senior trader at a European bank in Hong Kong.
The market had pared its expectations of massive purchases to
a more start-and-see-how-it-goes approach, he said, but in the
end QE was likely to continue until unemployment began to fall.
Macro funds had trimmed some of their short dollar positions
as they waited to see how the G20 currency debate shaped up, with
a question mark after the weekend statement as to whether major
currencies such as the euro should adjust upwards as much against
the dollar as Asian currencies.
"That's a bit harder to gauge and if dollar/Asia starts
moving lower there's still going to be some intervention and
there's still going to be some of that recycled into the euro and
the Aussie," the senior trader said.
The Australian dollar <AUD=D4> slipped 0.1 percent to
$0.9900, still unable to make a sustained push through parity.
But it was seen supported by demand stemming from corporate
merger activities and heightened expectations of a near-term
interest rate hike, with markets awaiting consumer inflation on
Wednesday to see if the Reserve Bank of Australia will tighten.
Markets are pricing in a 52 percent chance of a 25 basis
point rate hike to the 4.5 percent benchmark rate at the Nov. 2
meeting <CSRBA=CSAU>.
(Additional reporting by Ian Chua in Sydney and Hideyuki Sano;
Editing by Joseph adford)
