* Yen firms, euro eases as investors cautious
* Market watching U.S. earnings for direction
* Dollar edges up on Swiss franc after SNB comment
* Euro dented by report East Europe states talking to IMF
By Charlotte Cooper
TOKYO, July 10 (Reuters) - The yen inched up on Friday,
hovering below the week's peaks with investors cautious as the
U.S. corporate earnings season gets under way, while the euro
lost ground against the dollar and the yen.
The yen hit a five-month high against the dollar this week
and surged to two-month highs against the euro and Australian
dollar as investors unwound bets in riskier assets that they
made using the low-yielding Japanese currency.
It lost a chunk of those gains on Thursday but then held its
ground as the other currencies lost momentum and S&P stock
futures <SPc1> signalled a weak start to Wall Street later.
Analysts said investors continue to recalibrate their
expectations of economic recovery.
"People don't know what is happening at the moment. From now
on it depends on share market movement," said Jun Kato, senior
chief analyst at the Shinkin Central Bank Research Institute.
"People want to watch U.S. companies' performance in the
second quarter."
The euro fell 0.4 percent to 129.95 yen <EURJPY=R> after
gaining more than 1 percent on Thursday and rebounding from a
two-month low of 127.00 yen.
Dealers said a report in German daily Handelsblatt saying at
least 10 Eastern European countries were in talks with the
International Monetary Fund about multibillion dollar support
for their ailing economies had helped dent the euro.
[]
"Market players took the report as an excuse to further sell
the euro after seeing its sluggishness against the yen this
morning. But if asked if the news was surprising, investors
would say no," said a senior trader at a big Japanese bank.
"Despite its fall, the euro is not expected to slide much
further as bids are seen lined up below $1.39."
The euro fell 0.3 percent from late U.S. trade to $1.3972
<EUR=> after gaining 1 percent on Thursday.
The dollar was steady at 92.98 yen <JPY=> after pulling up
from a five-month low of 91.80 set on Wednesday.
The greenback gained 0.4 percent on the day to 1.0833 Swiss
francs <CHF=> after comments in a newspaper by Swiss National
Bank chairman Jean-Pierre Roth that the central bank did not
want the franc to appreciate more because it wanted to avoid
deflation. []
WHERE NEXT?
The Australian dollar, a popular trade against the dollar
and the yen in the past few months when stock markets were
rising, fell 0.3 percent to $0.7811 <AUD=D4> after dropping
earlier in the week below $0.7800 to its lowest since late May.
It also slipped 0.4 percent to 72.60 yen <AUDJPY=R>. It was
holding above a two-month low of 70.91 yen hit earlier in the
week but still well below June's 2009 peak of 80.43 yen.
Some in the market expect cross/yen pairs to draw support
from launches of Japanese mutual funds, or "toshins" in coming
days. Data compiled by Reuters shows 38 new funds featuring
overseas assets are due to launch before the end of this month.
Some of the funds will be denominated in currencies such as
the South African rand and the Australian and New Zealand
dollars. Nomura Research Institute data shows mutual funds
focusing on overseas assets already saw a net inflow of 66.7
billion yen ($718 million) in July 1-8.
The yen has tended to be a beneficiary when market
confidence recoils, partly because investors buy back yen to
close positions taken out in riskier assets.
Its surge this week caused some speculation in the market
that Japanese authorities might intervene to keep it down, as
they did earlier in the decade, but analysts in Tokyo say
intervention is unlikely at these levels. []
Finance Minister Kaoru Yosano declined comment on currency
levels on Friday but said he was convinced Japanese shares would
rise again eventually. []
Data showed Japanese wholesale prices fell 6.6 percent in
the year to June, the biggest annual drop on record, as the
world's No.2 economy slides deeper into its second spell of
deflation this decade. [].
Economics Minister Yoshimasa Hayashi said it was too early
to say the country had returned to deflation but that further
stock market declines and yen gains could harm exporter
sentiment. [].
(Additional reporting by Rika Otsuka, Kaori Kaneko; Editing by
Edwina Gibbs)
