By Masayuki Kitano
TOKYO, June 16 (Reuters) - The dollar neared a four-month
high against the yen on Monday, having earlier dipped after Group
of Eight finance ministers failed to produce a strong message
against dollar weakness at their weekend meeting.
The dollar trimmed its initial losses against the yen due to
buying by Japanese importers as well as a 2.6 percent rise in
Tokyo share prices <> that pointed to an increase in
investors' risk appetite, traders said.
A rise in risk appetite can bolster demand for carry trades,
which involve selling low-yielding currencies like the yen for
higher-yielding currencies and assets.
G8 finance ministers made no mention of foreign exchange in
their post-meeting communique on Saturday, and Japanese Finance
Minister Fukushiro Nukaga said the G8 did not discuss currencies
or joint intervention. []
While U.S. Treasury Secretary Henry Paulson repeated that he
backed a strong dollar, the outcome was a mild disappointment for
investors who had been girding for a stronger G8 message in
support of the dollar, market players said.
"I think this shows that expectations that something would
come out had been pretty strong," said Kazuyuki Takami, a manager
for Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading
department, referring to the dollar's initial dip.
The dollar fell as low as 107.85 yen on trading platform EBS
in early trade, but later shed its losses to trade flat on the
day at 108.20 yen <JPY=>, near a four-month high of 108.43 yen
hit on Friday.
The euro rose as high as $1.5436 <EUR=> but later trimmed
gains to stand at $1.5400, up 0.1 percent.
The euro fell to a one-month EBS low of $1.5303 on Friday
after Irish voters rejected a treaty promoting closer European
Union unity. []
But market players doubted that the rejection would have a
sustained impact on the euro since the treaty mainly concerned
the strengthening of political ties and seemed to have fewer
economic implications.
FOCUS ON MONETARY POLICY
Despite the initial knee-jerk reaction to the G8, the fact
that there was no overt opposition to Paulson's comments of
support for a strong dollar could be positive for the currency,
said a trader for a European investment bank.
"It suggests that there is some consensus beneath the
surface, that everyone is willing to cooperate," the trader said.
Whether that will lead to any intervention is another matter, he
added.
There were not enough reasons to push the dollar sharply
lower, traders said, adding that the currency was supported by
rising U.S. Treasury yields and signs of a shift in Washington's
view on the dollar.
U.S. two-year Treasury yields logged their biggest weekly
jump in 26 years last week as Federal Reserve officials ramped up
anti-inflation talk, and U.S. short-term interest rate futures
show that investors now expect the Fed to raise rates by around
75 basis points by year-end. [] <FEDWATCH>
Saturday's G8 meeting had been in the spotlight after a
flurry of comments this month from senior U.S. officials caused
investors to fret over the possibility of intervention to support
the dollar.
The dollar, however, could come under pressure if quarterly
earnings announcements by U.S. investment banks this week
rekindle concerns about the financial sector's losses from the
turmoil in credit markets, traders said.
(Additional reporting by Shinji Kitamura, Kazunori Takada in
Wellington; Editing by Brent Kininmont)
