Dollar Weakens Vs Yen on Weak China Data, Japan Stocks

       By Tatsuo Ito 

    The dollar weakened versus the yen in Asia Thursday, as a gauge of Chinese manufacturing activity slipped to its lowest level in six months and Tokyo stocks dipped.

    Concerns about the health of the world's second-largest economy following a drop in the preliminary HSBC Purchasing Managers' Index for January erased much of the greenback's earlier gains. The PMI slipped to 49.6 from December's 50.5.

    For currency traders, stock price fluctuations have been acting as a key clue for daily trading. Overseas investor purchases of Japanese stocks are regarded as a factor of a weaker yen.

    "But their buying spree, which had been seen toward the end of last year, has slowed lately, making trading range-bound," said Minori Uchida, chief currency analyst at Bank of Tokyo-Mitsubishi UFJ.

    Mr. Uchida said foreign investors usually buy yen in order to purchase of Japanese shares, but at the same time they sell it for hedging, a move that could neutralize the impact on the dollar/yen rate. But once the prices of their holding shares rise, they need to boost yen short positions, leading to a higher dollar, he added.

    The dollar rose as high as Y104.84 before falling back to Y104.37 at 0550GMT. It was at 104.50 in late New York on Wednesday.

    Traders are focusing on the strength of U.S. economy and the pace at which the Federal Reserve will reduce its bond purchase program ahead of the Federal Open Market Committee meeting Jan. 28-29.

    If markets can confirm that the Fed will trim its purchases in a market-friendly fashion, or by $10 billion per each month, the dollar is likely to reach Y105 again, Mr. Uchida added.

    Marito Ueda, managing director at FX Prime Corp, said even if a clear break of its recent Y103.50-Y105.50 range is difficult, the dollar's underlying strength could be maintained.

    "The dollar will definitely stay firm," given its strength against other currencies like the Australian and Canadian dollar, he added. The Canadian dollar extended its losses against the U.S. dollar and the yen in Asia after the Bank of Canada surprised markets Wednesday with an increasingly dovish tone on its inflation outlook.

    Interbank Foreign Exchange Rates At 00:50 EST / 0550 GMT 
                             Latest     Previous   %Chg   Daily   Daily    %Chg 
                                        2150 GMT          High    Low      12/31 
    Dollar Rates 
    USD/JPY Japan           104.37-38      104.51-55  -0.15   104.83   104.28  -0.89 
    EUR/USD Euro            1.3543-44      1.3546-49  -0.03   1.3556   1.3531  -1.46 
    GBP/USD U.K.            1.6558-62      1.6571-76  -0.08   1.6576   1.6558  +0.02 
    USD/CHF Switzerland     0.9119-22      0.9114-18  +0.05   0.9134   0.9114  +2.14 
    USD/CAD Canada          1.1132-36      1.1085-91  +0.41   1.1156   1.1084  +4.82 
    AUD/USD Australia       0.8803-06      0.8851-55  -0.55   0.8852   0.8788  -1.24 
    NZD/USD New Zealand     0.8283-88      0.8307-13  -0.30   0.8314   0.8264  +0.78 
    Euro Rate 
    EUR/JPY Japan           141.33-38      141.57-64  -0.18   141.92   141.22  -2.34 
    Source: ICAP PLC 

    Write to Tatsuo Ito at