FOREX-Dollar weaker before US jobs data, G7 looms
TOKYO, Feb 2 (Reuters) - The dollar was steady against major currencies on Friday, nursing losses as investors awaited monthly U.S. jobs data and kept an eye out for more comments on the weak yen before next week's Group of Seven meeting.
The yen's 16 percent slide in the past three years to record lows against the euro has become the centre of attention before the G7 gathering as European officials have sought to make the currency's woes a major topic of discussion.
But Japanese and U.S. officials have played down the focus on the yen, with U.S. Treasury Secretary Henry Paulson telling Congress this week that the weak yen reflected Japan's low interest rates in trying to shake off years of deflation.
Paulson also told Bloomberg Television on Thursday that he was satisfied that the yen's value was set by markets and that he was looking at the yen more carefully "only because of the publicity coming out of Europe".
The chorus of comments out of Europe has prompted a variety of investors to trim back their hefty positions betting on a weaker Japanese currency ahead of the Feb. 9-10 G7 meeting.
"My take on it is that there is an overall concern," said Luke Waddington, head of FX trading at Royal Bank of Scotland in Tokyo. "The jitters and worries are well founded, it just may not be represented at this G7."
Japan's low rates -- at just 0.25 percent compared with 3.5 percent in the Europe and 5.25 percent in the United States -- have given market players the green light to borrow yen for funds to buy higher-yielding currencies in the carry trade.
Japanese investors have also sought better returns in higher-yielding foreign assets, leading to a large outflow of cash from the country.
The dollar was little changed near 120.70 yen JPY=, rebounding from a low of 120.10 yen on Thursday but down from the four-year high of 122.20 yen struck earlier this week.
The euro slipped to 157.13 yen EURJPY=R from 157.33 yen in late New York trade, holding off the peak of 158.62 yen struck last week -- the strongest since the single currency was launched in 1999.
The euro was flat at $1.3019 EUR= after climbing as high as $1.3054 the previous session, matching its strongest in the past month.
Beyond the drama around the looming G7, market players are awaiting the U.S. payrolls report to see if the data reinforces the outlook for solid growth and for the Federal Reserve to keep interest rates steady.
In a Reuters poll, the median forecast of economists was for companies to have added a healthy 149,000 jobs in January after an increase of 167,000 the previous month.
The dollar dipped the previous session after data showing U.S. manufacturing activity unexpectedly contracted last month, but the troubles at factories seemed contained as consumer spending was solid in December.
In the run-up to the G7, Paulson's comments this week were seen as making it unlikely that the Japan would be singled out in the G7's communique, even as host Germany has said the yen would be a topic of discussion.
Japan's top financial diplomat, Hiroshi Watanabe, said on Thursday the yen was unlikely to be a focus of the Essen talks even if some G7 members mentioned it.
Currency strategists at Morgan Stanley said in a note to clients that investors were beginning to see that the risks surrounding the G7 "will prove less potent than initially assumed".
