Forex - US dollar higher vs yen in early Tokyo after tame Japan inflation data

Forex - US dollar higher vs yen in early Tokyo after tame Japan inflation data

	Published : Fri, 26 Jan 2007 02:16 By : Agencies Print this Story

TOKYO (XFN-ASIA) - The US dollar was stronger against the yen here after tamer-than-expected Japanese inflation data for December reduced expectations for a rate hike in Japan in February, dealers said.

Japan's core consumer price index, which excludes volatile prices of fresh food but includes energy prices, rose 0.1 pct from a year earlier in December, the seventh straight monthly increase, but below the forecast rise for the month.

Economists on average had forecast a 0.2 pct rise in the December core CPI. Based on US standards, which exclude food and energy costs, Japan's CPI fell 0.3 pct year-on-year in December, down for the 12th straight month, after dropping 0.2 pct in November.

At 9.33 am, (033 GMT), the dollar was trading at 121.55 yen, up from 121.11 in late New York trade overnight, while the euro was at 1.2935 usd, up from 1.2928 in New York.

'Weaker-than-expected CPI data reduced the market's expectations for a rate hike in February, thereby giving strong impetus to the US currency,' Sumitomo Trust & Banking forex dealer Norihiro Takemura said.

'With confidence in the strength of the US economy, despite the weak existing home sales overnight, improving, the dollar may be bought to test the 122 yen level,' he added.

The National Association of Realtors said sales of US existing homes fell 0.8 pct in December to a seasonally adjusted annual rate of 6.22 mln.

But the dollar's upside was capped by lingering views that despite tame Japanese inflation data, the Bank of Japan may still try to explore chances for a rate hike next month, dealers said.

'Looking at yesterday's remarks by (BoJ board member Miyako) Suda, the market cannot rule out the possibility of a rate hike, despite the weak inflation data,' Takemura said.

Suda, who was considered to have proposed a rate hike at the Jan 17-18 meeting, said yesterday that the central bank should be ready to take risks in managing monetary policy, emphasizing that risks could also arise from acting too late on interest rates.

'In addition, the market is becoming a bit wary about the possibility that the G7 central bankers and finance ministers may talk about the issue of the weak yen,' Takemura said.

The euro was firmer against the dollar, recouping its overnight losses driven by weak data, thanks to short-covering, dealers said.

The Ifo research institute said its business climate index for Germany slipped to 107.9 in January from 108.7 in December, below the consensus forecast of a rise to 108.9.

Tokyo 9.33 am (033 GMT)

US dollar

yen 121.55

sfr 1.2480

Euro

usd 1.2935

yen 157.25

sfr 1.6146

stg 0.6581

Sterling

usd 1.9650

yen 238.86

sfr 2.4530

Australian dollar

usd 0.7735

stg 0.3935

yen 94.02

(1 usd = 121.55)

yasuhiko.seki@xfn.com