* U.S. budget impasse saps incentive to buy dollars
* Japan corporate tax-cut hopes lead to yen-selling
* Dollar index firms but remains not far off a 7-mth trough
* Euro rises on yen, erases early gains against dollar
By Lisa Twaronite
TOKYO, Sept 26 The dollar gained on the yen in
Asia on Thursday on hopes of more corporate tax reform steps
from Japan's government, though the U.S. budget impasse kept the
greenback shackled against other rivals.
Against the yen, the dollar rose as high as 99.12 yen
on the EBS trading platform, and last bought 98.88 yen, up 0.5
percent and off a one-week low of 98.27 yen touched in the
The euro added 0.4 percent to 133.70 after rising
as high as 133.91 yen on EBS.
"Today's move was not a sign of dollar strength, but rather
a signal of yen weakness, and yen selling," said Masashi Murata,
senior currency strategist at Brown Brothers Harriman,
"There was a Kyodo News headline this morning that Japan
will urgently consider cutting the corporate tax rate, and while
this was not new, and any change is unlikely to be implemented
immediately, some took it as a fresh reason to sell yen," he
The Japanese government plans to say it will "urgently
consider" cutting the corporate tax rate when it compiles a
stimulus package next week, Kyodo said, citing government
A government source told Reuters last week that Japan will
consider cutting corporate taxes and ending a temporary tax hike
earlier than scheduled, as a means to cushion the economy from a
scheduled sales tax increase.
Prime Minister Shinzo Abe is expected to decide around Oct.
1 to proceed with a planned sales tax increase to 8 percent from
5 percent beginning next April, in a bid to rein in Japan's
massive public debt. He recently instructed his cabinet to come
up with measures to blunt the economic impact of the hike.
Murata added that the Japanese currency's direction was
largely determined by rate differentials between the U.S. and
Japan, and that investors were warily watching developments in
the U.S. budget situation.
Both the debt ceiling and government funding issues have
been complicated by Republican attempts to use the must-do bills
to gut President Barack Obama's healthcare law. Congressional
officials must reach a budget deal by Monday that would allow
the government to keep running.
The dollar index rose 0.1 percent to 80.417, after
slipping 0.3 percent on Wednesday toward a 7-month trough of
80.060 plumbed on Sept. 18. On that day, the U.S. Federal
Reserve stunned markets by maintaining its massive stimulus
programme when it had been widely expected to begin tapering its
The Fed opted to stand pat on policy partly because it
acknowledged the potential headwinds from the looming U.S.
political impasse over the budget. Central bankers also remained
concerned about the strength of the U.S. recovery, and
subsequent data has validated those concerns.
U.S. figures on Wednesday showed orders for long-lasting
manufactured goods barely grew in August, while sales of new
homes last month were near their lowest level of the year.
The final reading of U.S. second quarter gross domestic
product is due later on Thursday, followed by the key non-farm
payrolls report next week.
Stronger-than-expected data would likely reignite
speculation that the Fed could announce a stimulus reduction in
December, or even next month. This possibility will continue to
support the U.S. currency, market participants said.
Investors are also wary of selling the dollar short against
a backdrop of a U.S. political showdown, because the U.S. unit
has rallied when past impasses were resolved.
The yen's drop gave the dollar a cross-trading lift against
the euro, which erased its earlier gains and edged down about
0.1 percent to $1.3518.
Data showing German consumer confidence at a six-year high
supported the euro.