Yen weaker with market wary of intervention


Asia-based currency traders are wary of intervention on Tuesday, with the yen still below the 120 mark

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan (CNN) -- The yen is trading at 119.84 to the U.S. dollar on Tuesday morning in Tokyo. That's slightly weaker than its level in New York trade late on Monday.

Currency traders are wary that Japan's central bank will step back into the market.

The strong 'tankan' report out of the Bank of Japan on Monday showed Japanese business is feeling increasingly confident. But pessimists still outweigh optimists (full story).

The leap for the June quarter was the largest on record. That implies a stronger economy and a stronger currency.

But the yen has scarcely budged since the tankan came out.

"The players don't dare to push the dollar/yen too much down. Because they are aware of the BOJ's intervention," a Hong Kong-based research analyst with the Bank of America told CNN on Tuesday.

'They will intervene again'

"They will intervene again," he added. But he could not predict when the BOJ will spend yen for dollars. "The current level is already very low in the BOJ's view. They can intervene anytime."

The BOJ in fact tends to intervene during the Asian lunchtime. That can catch hungry traders unaware (full story).

By one estimate, Japan spent around 2 trillion yen ($16.7 billion) defending its currency in June alone.

Business confidence in the tankan improved because of exports, fueled by a weaker yen.

"This simply serves to highlight the dependence of the current recovery on a continued boost from exports," ING Barings economist Richard Jerram wrote. "Doubts over the strength of foreign demand will likely restrain optimism over the June tankan."

Currency-market trackers believe the Bank of Japan accounted for the bulk of the 2.27 trillion in foreign-exchange transactions for June, to maintain exports.

A waste of time and money?

Traders believe BOJ intervention is a waste of time and money. Markets set the level of the yen sooner or later, by their logic.

"The past few interventions didn't cause much impact at all," the Bank of America analyst said.

Buying dollars causes the yen to weaken. Its exchange rate can move up 1.50 yen to the dollar in a matter of minutes. But the effect is temporary.

"After a while, it went back down. So actually it has no impact," the analyst added. Traders outlined the same pattern when the BOJ intervened on June 24 (full story).

The yen rate has little to do with Japan, most currency experts believe. Accounting scandals in the United States and the questionable state of stock markets there have driven the dollar weaker.

Wages no help in Japan

Markets appear to have digested the Enron and WorldCom shocks. Equity watchers state that Monday's stock-market slump in the United States was a technical correction.

Nasdaq fell 4.1 percent to its lowest level in five years. The S&P 500, a broader measure, fell half that, down 2.14 percent (full U.S. roundup).

Tokyo stocks headed south from the open, with the Topix down 1.59 percent to 1,012.31 in mid-morning (Asian stock open).

Japan has its domestic problems. A survey of employers put out Monday showed that wages were very weak in May, falling 1.8 percent over last year.

Economy bottomed in January

"Overtime hours worked did improve in line with the recovery in industrial production, but that is not having an appreciable impact on total wages, as companies continue to shed fixed labor costs," J.P. Morgan economist Ryo Hino wrote in a report.

Economists believe that Japan's economy bottomed in January. But wages continue to fall, dragging prices, profits and overall employment with them.

In the last report, Japan's jobless rate rose to 5.4 percent (full story).