*Focus on how much Fed statement may emphasise inflation
*Dollar could slip if Fed also highlights economic weakness.
*Yen's fall in June puts focus on Japan retail investors
*But signs mixed on impact from Japan's bonus season
By Masayuki Kitano
TOKYO, June 25 (Reuters) - The dollar steadied against the
yen and euro on Wednesday after dipping the previous day after
U.S. consumer confidence hit a 16-year low and housing prices
suffered a record annual drop.
The weak data stirred doubts about the U.S. Federal Reserve's
ability to raise interest rates later this year to stem
inflation, dragging the dollar lower on Tuesday. []
The Fed is seen likely to keep interest rates unchanged at 2
percent at a two-day policy meeting that ends on Wednesday.
Investors are focusing on the Fed's post-meeting statement
and whether the central bank will signal more concern about
inflation than downside risks to the U.S. economy.
"Looking at yesterday's numbers, you get the sense that they
cannot just talk about inflation," said a trader for a foreign
bank.
"If that turns out to be the case, the dollar will probably
be sold, at least initially."
The dollar was steady from late U.S. trading on Tuesday at
107.82 yen <JPY=>. It fell to around 107.65 yen earlier, with
traders citing selling by Japanese exporters. Traders also said
that level drew buy orders from Japanese importers, helping
support the dollar.
The euro was steady at $1.5571 <EUR=>.
Against the yen, the single European currency was steady at
167.88 yen <EURJPY=R>, having pulled back from an 11-month high
of 168.38 yen hit on trading platform EBS on Tuesday.
Hong Kong's stock, derivatives, forex and debt markets closed
Wednesday morning after a severe tropical storm warning.
[]
The yen has fallen broadly this month, having hit a 17-year
low against the Swiss franc, a seven-month low versus the
Australian dollar, and falling close to last July's record low
against the euro of 169.05 yen.
The Japanese currency has been hurt by market expectations
that the Bank of Japan will keep interest rates at a low 0.50
percent for a while due to weakness in the domestic economy.
RETAIL FLOWS?
The yen's broad slide has given rise to speculation that
Japanese retail investors may use some of their summer bonuses to
invest in higher-yielding foreign currencies.
While such Japanese household investment may explain part of
the yen's weakness, other factors were also likely at work, said
a trader for a Japanese bank.
"There are probably some of those flows ... but I don't think
there is any rush into foreign-currency denominated investment as
there was a year or two ago," the trader said.
Factors such as commercial flows and position unwinding may
be bigger reasons behind the yen's fall, he said, adding that
European companies may have been buying euros recently to
repatriate profits from Japan.
Gaitame.com, one of the biggest foreign exchange margin
brokers in Japan, has not seen any major increase in trading
activity this month, said Tsuyoshi Ueda, senior vice president
for Gaitame's treasury department.
"There does not seem to be any direct link with bonuses."
But it is not as if Japanese individuals have lost their
appetite for foreign currency-denominated investment either.
"We have seen a 20 percent to 25 percent rise in open
interest in long positions on the South African rand this month,"
Ueda said.
(Additional reporting by Shinji Kitamura and Chikako Mogi)
