By Satomi Noguchi
TOKYO, June 9 (Reuters) - The dollar rose against the yen on
Monday, rebounding from a sharp fall late last week when data
showing an unexpectedly big jump in the U.S. jobless rate
revived fears of a deeper and more prolonged economic downturn.
The euro also climbed to a five-month high against the yen
as investors shifted their focus to the euro zone's widening
interest rate advantage compared with Japan, helping to lift the
dollar versus the yen.
Traders said the earlier drop in the euro against the yen
only invited traders to chase the euro higher after European
Central Bank President Jean-Claude Trichet signalled last week a
possible July rate hike to 4.25 percent next month to quell
inflation pressures.
With Japan's Nikkei stock average still in sight of a
five-month high, investors felt encouraged to return to risky
carry trades, helping push up higher-yielding currencies such as
the Australian dollar.
The Nikkei <> dropped 2 percent, but losses were
limited compared with the 3 percent slide on Wall Street.
Little prospect is seen of Japanese rates rising in the
immediate future from 0.5 percent, the lowest among industrial
nations.
In carry trades, the low-yielding yen is borrowed to fund
investment in higher-yielding currencies and assets. But such
trades are vulnerable to falling share prices, which erode
investors' tolerance for risk and typically prompt buying back
of the yen.
"The euro seems to have taken centre stage for now, with a
lot of talk favouring the euro against the yen," said a senior
currency option trader at a big Japanese bank.
The dollar rose 0.4 percent from late Friday New York trade
to 105.31 yen <JPY=>, rebounding nearly a full yen from the
day's low of 104.40 yen hit on trading platform EBS.
Earlier in the session, traders rushed to cut dollar-long
positions that had pushed the U.S currency to a three-month high
above 106 yen last week, analysts said.
The euro climbed 0.3 percent to 166.07 yen <EURJPY=R> and
reached a peak of 166.39 yen, the highest since late December,
recovering sharply from an early low of 164.97 yen.
Against the dollar, the euro was little changed at $1.5780
<EUR=> after edging up to $1.5800 on EBS.
News on Friday of the biggest jump in the U.S. unemployment
rate in 22 years, to 5.5 percent in May, dented expectations the
Federal Reserve will hike interest rates before the year is out.
"The payrolls report last week made market players have
second thoughts about the recent optimistic outlook for the U.S.
economy, hurting the dollar," said Shuichi Kanehira, a senior
trader at Mizuho Corporate Bank.
But he said market players would look to comments by Fed
Chairman Ben Bernanke later on Monday to see if he repeats his
rare attempt last week to talk up the dollar by saying a
weakening of the currency is adding to price pressures.
Oil prices <CLc1> fell on Monday, giving the dollar some
respite after its tumble late last week. They had posted their
biggest ever one-day surge on Friday, leaping more than $10 to a
record high near $140 a barrel.
(Editing by Brent Kininmont)
