RTRS: Yen slips, euro hits 2-1/2-year low vs dollar
By Rika Otsuka
TOKYO (Reuters) - The yen slipped against the dollar and the euro on Tuesday, as caution grew about the prospect of intervention and as some market players took profits on last week's surge in the Japanese currency.
The euro hit a 2-1/2-year low against the dollar a day after European Central Bank President Jean-Claude Trichet said the bank could cut rates at its next meeting on November 6.
Market players were nervous about yen levels after a statement from the Group of Seven economic powers on Monday singled out its excessive volatility and said they would monitor markets closely.
But many were doubtful that intervention would be effective, saying it would work only if market players felt that the financial crisis can be resolved.
"Currency intervention alone is unlikely to make the market turn around," said a senior trader at a Japanese trust bank.
French Economy Minister Christine Lagarde said on Monday any intervention on the yen would be a purely Bank of Japan undertaking.
The dollar climbed 1.1 percent from late U.S. trade to 93.78, moving away from a 13-year trough of 90.87 yen struck on trading platform EBS on Friday.
Nissan Motor Co (7201.T: Quote, Profile, Research, Stock Buzz) and Renault SA's (RENA.PA: Quote, Profile, Research, Stock Buzz) Chief Executive Carlos Ghosn warned that current dollar/yen levels would sap Japan's competitiveness.
"It was already difficult to compete at 100, 105, but at 93? It's going to be very difficult," he told a business seminar.
Traders said a rebound in Tokyo's Nikkei share average .N225 from a 26-year low sparked buying of higher-yielding currencies, such as the euro, the Australian dollar and the sterling, which have been battered in the past months.
The yen has leapt about 20 percent on a trade-weighted basis .IBOXXFXJPY this month as investors unwind carry trades, in which they borrowed the low-yielding yen to buy assets offering higher returns elsewhere.
These trades have collapsed in recent weeks, sending the yen to a 6-1/2-year high against the euro and an all-time peak versus the Australian dollar, as concerns over the deteriorating global economy and falling asset values have prompted market players to sell assets to raise cash.
Despite the yen's fall on Tuesday, few in the market believe the upward trend in the Japanese currency has run its course.
Traders said there were many dollar-selling orders above 94 yen, which was expected to limit the U.S. currency's gains. The yen is likely to test a 13-year peak if Japanese investors, who still have lots of overseas assets, decide to dump them.
"Market participants, including players of yen carry trades, hedge funds and Japanese individual investors, continue to trim their assets as Japanese stocks have fallen so much," said Hideki Hayashi, chief economist at Shinko Securities.
The Nikkei has lost more than half its value this year.
The euro rose 0.4 percent to 116.46 yen after slipping as low as 114.45 yen on sales of overseas assets by Japanese institutional investors. The euro struck a 6- year low of 113.62 on EBS the previous day.
The euro dropped 0.5 percent to $1.2430 after falling as low as $1.2329 on EBS.
Trichet's comments about a possible rate cut next week surprised the market and investors are now speculating about the size of a move. Earlier this month, the ECB has cut rates by 50 basis points together with other central banks including the Federal Reserve.
The U.S. central bank is also seen lowering interest rates at its two-day meeting starting on Tuesday. Many in the market expect the Fed to slush the fed funds rate -- currently at 1.50 percent -- by at least 50 basis points.
The Australian dollar climbed 1.0 percent against the U.S. dollar to $0.6090 after the Reserve Bank of Australia intervened to prop up the Australian currency.
It was the third straight day that the central bank entered to help the Australian dollar, which has lost more than 35 percent against the U.S. dollar since peaking in July.
