AFX News Limited
Forex - Dollar firms in late Asia trade;yen surrenders brief gains from BoJ hike
07.14.2006, 05:13 AM


SINGAPORE (XFN-ASIA) - The US dollar was broadly firmer in late Asian trade as the Bank of Japan's widely expected decision to raise interest rates provided no lasting support for the yen, aside from a brief spike after the news was announced.

The dollar eased below Y115.50 straight after the central bank announced its decision to hike rates for the first time in almost six years, from Y115.71 before the verdict was out.

It subsequently recovered to around Y115.85 and was carried through Y116.00 in late dealings.

In a unanimous vote, the BOJ's nine policy board members voted to end its zero rate policy and raise the target for the overnight call rate to 'around 0.25%,' and to raise the official discount rate, the upper limit on overnight rates that commercial banks charge each other, to 0.4% from 0.1%.

But the central bank said that it will keep interest rates at 'very low' levels for the time being, implying that it would not rush the second increase.

'There was little in today's BOJ decision to change market expectations on the BOJ rate outlook,' UBS AG said in a daily note.

The yen remained heavy even after the BOJ later upgraded its view of the economy in its monthly report for July, saying the economy is 'expanding moderately' instead of the previous 'recovering steadily.'

FX dealers noted that the yen had already been under pressure before the BOJ announcement, as jitters over geopolitical risks and high oil prices battered sentiment and sparked demand for safe-haven instruments. Players were also wary about taking new yen positions because of Monday's holiday in Japan.

'The implications are that monetary policy is not directing the yen at the moment,' UBS said. 'The bias recently has been for the yen to weaken, and there is no clear catalyst of a much stronger yen for now.'

Looking ahead, dealers said the dollar-yen will continue to be supported from around Y115.00 while on the topsidethe pair may face some difficulty clearing Y116.70/80.

Singapore 3.50 pm (0750 GMT)Sydney 10.01 am (0001 GMT)

US dollar

yen 115.86 up from 115.42

sfr 1.2329 up from 1.2293

Euro

usd 1.2665 down from 1.2692

stg 0.6887 up from 0.6886

yen 146.79 up from 146.49

sfr 1.5620 up from 1.5602

Sterling

usd 1.8380 down from 1.8435

yen 213.02 up from 212.79

sfr 2.2668 up from 2.2666

Australian dollar

usd 0.7495 down from 0.7531

stg 0.4077 down from 0.4085

yen 86.890 down from 86.905

singapore@xfn.com

bur/mb

Source:http://www.forbes.com/markets/feeds/afx/2006/07/14/afx2878768.html