May 21, 2013 / 4:21 AM / 6 years ago

FOREX-Dollar regains ground after Japan economy minister clarifies yen comments

* Japanese econ minister says he hopes FX market can find ‘balance’

* BOJ meeting, Bernanke’s Congressional testimony in focus

* Dollar index stays near 3-year high

By Sophie Knight

TOKYO, May 21 (Reuters) - The dollar edged up against the yen on Tuesday after Japan’s economy minister clarified earlier remarks about the yen’s weakness that had toppled the greenback from a 4-1/2-year high against the Japanese currency on Monday.

The dollar rose 0.2 percent to 102.69 yen, after falling off Friday’s peak of 103.32 in the previous session as economics minister Akira Amari suggested that the yen’s strength had been largely corrected.

Earlier on Tuesday, Amari told reporters he hopes the yen settles at a level that is in line with the country’s economic fundamentals and that the foreign exchange market can find a balance between the yen’s impact on imports and exports.

Amari said he would not comment on whether a correction in excessive yen strength was over or not, although he said at the weekend that some people thought the currency’s excessive strength had been largely unwound, which triggered a rebound in the yen.

“The weekend comments were misread. He didn’t say it in the way it was reported in English,” said a Japanese market participant.

“But the recent strength (of the dollar) is faster than expected, that’s why I think they’re trying to bring it down a bit, but the basic stance is that they prefer to maintain a weakening policy in the long term.”

Half of the 400 Japanese companies questioned in a Reuters survey said the yen has fallen enough, with just 15 percent wanting it to decline further. One third said they would like to see it rebound from its 4-1/2-year low.

Still, restraining the dollar’s gains against the yen may prove difficult in light of expectations that the Federal Reserve will trim its bond purchases sooner than expected, which would lead U.S. Treasury yields to rise.

“You can’t direct the forex market with words because at the end of the day it comes down to supply and demand,” said Junya Tanase, executive director of forex at JPMorgan.

Higher yields on U.S. government debt could entice Japanese investors starved of yield at home if the Bank of Japan’s massive-bond buying programme eventually forces Japanese debt prices up - although that hasn’t happened yet.

“It looks like bond investors don’t believe in the BOJ’s two percent inflation target yet. I think it’s going to be volatile for a while...but eventually it will be hard to ignore the amount the BOJ is buying and yields will drop,” Tanase said.

The Bank of Japan, which begins a two-day meeting on Tuesday, is expected to keep policy unchanged but could tinker with its bond-buying plan to curb a recent rise in Japanese yields. Analysts said the yen looked set to resume its recent weakening as Tokyo was committed to easier monetary policy.

The market is now focusing on U.S. Federal Reserve Chairman Ben Bernanke’s testimony to Congress on Wednesday after recent comments by Fed officials fuelled speculation the U.S. central bank may start to roll back its bond purchases soon.

“We are sticking with the USD-bullish trend and keeping an eye on one of the leading bullish USD currency pairs: USD/JPY. A close below 102.08 in USD/JPY is needed to suggest a reversal to challenge the ongoing bullish USD outlook,” wrote Barclays analysts in a note.

Against a basket of currencies, the dollar added 0.1 percent from late U.S. levels to 83.822, though it stayed below Friday’s peak of 84.371, its highest level since July 2010.

The euro inched up 0.1 percent to $1.2891, close to a one-month low of $1.2795 struck on Friday. It strengthened against the yen, buying 131.90, but remained sandwiched between support at 131.11 and resistance at 132.78, a 3-1/2-year peak hit on May 14.

The Australian dollar steadied at $0.9808 after dropping below $0.98 ahead of the release of minutes from the Reserve Bank of Australia’s last policy meeting. It stayed close to an 11-month low of $0.9711 struck on Friday.

The Aussie has slid 5.6 percent so far this month, after a surprise rate cut from the central bank left the currency out in the cold. Concerns that China’s demand for commodities will not recover to previous heights are also weighing on the currency.

Against the yen, it has only chalked up a 3.2 percent gain , since the BOJ announced its audacious easing plan on April 4, compared with the U.S. dollar’s 10 percent gain.

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