By Naomi Tajitsu
TOKYO, Jan 25 (Reuters) - The dollar edged up against the yen
on Friday as a broad recovery in global stock markets from a
frantic sell-off encouraged risk taking, putting the Japanese
currency under broad selling pressure.
A third straight day of gains in many Asian equities markets
emboldened investors to take chances, prompting use of the
low-yielding yen to buy assets in higher-yielding currencies in
carry trades.
The euro was supported after tough inflation talk by European
Central Bank officials on Thursday cooled speculation of a
possible euro-zone interest rate cut, even as the Federal Reserve
is expected to slash rates further.
Tokyo's Nikkei average <> rose 3 percent by
mid-afternoon, extending Thursday's gains and heading for a full
recovery from this week's losses, which had pushed share prices
to a 2-1/2-year low and prompted investors to dump risky assets.
Stock markets moves are often regarded as a barometer of risk
appetite, and financial markets have calmed down after swinging
wildly earlier in the week on an emergency interest rate cut by
the Federal Reserve and escalating fears of a U.S. recession.
"The market is coasting today as the volatility that we saw
earlier in the week has died down," said Hiroshi Yoshida, a forex
trader at Shinkin Central Bank.
"As a result, it's becoming easier to sell the yen."
The dollar rose as high as around 107.30 yen <JPY=>, pulling
away from a 2-1/2-year low of 104.95 yen hit on Wednesday.
The euro <EURJPY=R> edged up 0.2 percent to 158.11 yen.
Other high-yielders climbed against the yen. The Australian
dollar <AUDJPY=R> rose 0.4 percent to 94.62 yen, while sterling
<GBPJPY=R> edged up 0.1 percent to 211.87 yen, pulling further
away from 21-month lows near 204.60 yen hit earlier in the week.
The euro was steady around $1.4760 <EUR=>, bolstered after
ECB policymakers rejected talk of lower interest rates on
Thursday and restated an intent to control inflation risks.
ECB council member Axel Weber referred to bets that the
central bank may cut rates by the end of September as "wishful
thinking", while president Jean-Claude Trichet reiterated that
controlling inflation was the ECB's main goal. []
The comments came on a day that data showed an unexpected
improvement in German corporate sentiment in January, suggesting
the euro zone was withstanding turmoil in financial markets.
The New Zealand dollar <NZD=D4> fell 0.3 percent to 77.11
U.S. cents after the nation's central bank governor said the
currency was still overvalued and the economy faced further
inflation shocks from higher energy and food prices.
FED, DATA IN FOCUS
Despite the dollar's recovery against the yen, it is seen
staying on the back foot as U.S. economic weakness remains a
serious concern, and analysts said more signs of a looming
recession could trigger more selling of the dollar, as well as
another unwinding of yen-selling positions.
"It's too early to tell if risk demand is going to recover
completely," said Junya Tanase, a forex strategist at JPMorgan
Chase Bank in Tokyo, adding that next week would be key in
gauging just how sluggish the U.S. economy is.
The Fed holds a policy meeting next week at which it is seen
cutting rates by up to 50 basis points after a 75 basis point cut
to 3.5 percent at an emergency meeting this week.
Analysts also said the market was looking ahead to a raft of
crucial economic indicators, including readings of U.S.
employment and manufacturing.
Traders brushed off data on Friday showing that core Japanese
consumer prices in December rose at their highest year-on-year
pace in nearly 10 years, as it did little to change the view that
the Bank of Japan will sit tight or even cut interest rates this
year due to the credit crisis. []
(Additional reporting by Masayuki Kitano, Editing by Michael
Watson)
