* Dollar/yen resistance at 103.25 -strategist
* Euro takes back lost ground after drop to 5-week low vs
* Dollar index steady, close to highest level since July
By Lisa Twaronite
TOKYO, May 15 The dollar edged lower in early
Asian trade on Wednesday but stayed close to its highest point
against the yen in four and a half years on signs of an
improving U.S. economy and rising Treasury yields.
The dollar index was steady at 83.589, after
retracing its overnight high of 83.687, which was its loftiest
level since July 2012.
The dollar bought 102.24 yen, down about 0.1 percent
but still not far from 102.42 yen on Tuesday on the EBS trading
"Initially the dollar/yen rally had appeared to stall but
once Treasury yields turned positive, dollar/yen broke above 102
to hit an intraday high," said Kathy Lien, managing director at
BK Asset Management in New York.
With U.S. 10-year yields approaching 2 percent, Japanese
investors will realize that they offer an opportunity for yield
and capital appreciation as the Bank of Japan's policies weaken
the yen even as the U.S. Federal Reserve prepares to remove its
stimulus, she said in a note to clients.
Lien expects the dollar to initially target 103 yen, with
resistance at 103.25 yen, the 38.2 percent Fibonacci retracement
of its 1998 to 2011 selloff.
U.S. data released on Tuesday showed U.S. import prices fell
in April due to a drop in oil costs, a positive sign for
household finances that also indicated benign inflation
Meanwhile, the BOJ could further ease monetary policy as
early as October if prices do not rise as quickly as projected,
according to economists polled by Reuters, who also upgraded
their growth forecasts.
Japanese government bond yields extended gains for a fourth
session in early trade.
If the spread between the U.S. 10-year yield and
the 10-year Japanese JGB yield widens, Japanese
investors would have more incentive to put their funds in
overseas bond markets.
The euro tacked on 0.1 percent to $1.2935, moving
away from a more than five-week low of $1.2925 hit earlier in
The single currency remains on the defensive amid the
potential risk of the European Central Bank slashing its deposit
rate into negative territory and charging depositors for parking
their funds with the ECB.
The Australian dollar clawed back some ground lost to the
greenback, rising 0.2 percent to $0.9912, after it
skidded to a fresh a fresh 11-month low of $0.9877 on Tuesday.