FOREX-Dollar off 7-mth high vs yen on profit-taking
Thursday, 23 February 2012

* Yen gets respite after extended slide but gains limited

* Japan exporters, profit-taking dents dollar

* Bids from Japanese importers lend dollar support

* Talk of M&A related demand for CAD/JPY

By Masayuki Kitano

SINGAPORE, Feb 23 (Reuters) - The dollar dipped against the yen on Thursday, inching away from a seven-month high hit the previous day, after profit-taking and selling by Japanese exporters.

The greenback took a breather from its recent rally against the yen, having climbed 5.3 percent in February.

Part of the reason for the yen's weakness is the Bank of Japan's surprise easing last week and growing momentum as key support levels give way, spurring more selling in the Japanese currency.

The dollar's surge over the past few weeks has stirred talk that the greenback's down-trend versus the Japanese currency since mid-2007 may be drawing to a close.

"I think it's quite possible, but I have always thought the long-term move higher in dollar/yen will only happen when it looks like U.S. rates will move up in the near term," said Adam Gilmour, head of FX and derivatives sales, Asia-Pacific, for Citigroup in Singapore.

Since the prospect of the U.S. Federal Reserve raising interest rates still seems far off, some caution may be in order. "I am a little cautious about being too enthusiastic here," Gilmour said.

The dollar dipped 0.1 percent to 80.25 yen, inching away from the previous day's high of 80.406 yen hit on trading platform EBS, the dollar's highest level since July.

In the near-term, the dollar may be poised for a bit of a pullback, said a trader for a major Japanese bank in Tokyo.

"Timing-wise, I think the rally may be about to end for now, although it's hard to say at what level it will stop," he said.

Traders said the dollar sagged on profit-taking by short-term players and selling by Japanese exporters.

Japanese exporters rushed to secure their dollar/yen targets for the new business year that starts April 1, Tokyo dealers said. Some exporters have dollar targets of 80 yen, and are selling the dollar now to hedge their foreign exchange exposure for the April-June quarter, they said.

Lending support to the U.S. currency was dollar-buying by Japanese importers, traders said.

With oil prices having hit a nine-month high this week, major Japanese oil importers such as power companies need larger amounts of dollars to buy oil.

There was also talk of Canadian dollar-buying against the yen related to Japanese trading house Mitsubishi Corp's purchase of a stake in a Canadian gas field. Mitsubishi has agreed to pay C$1.45 billion ($1.45 billion) for the stake in the gas field in a deal that will be finalised later this month.

JAPANESE IMPORTS AND OVERSEAS INVESTMENT

Increases in imports by Japan and overseas direct investment by Japanese firms have caused a shift in the balance of flows in the dollar versus the yen, and helped set the stage for the yen's weakness in the past few weeks, said the trader for a major Japanese bank in Tokyo.

Japan posted its first trade deficit since 1980 last year, after a devastating earthquake last March hurt exports and increased its reliance on fuel imports due to nuclear plant shutdowns.

"It may be the case that an overall trend of yen strength has ended," the trader said. "But I don't think we will see a V-shaped move toward yen weakness (and a higher dollar)."

One risk is that if the U.S. economy starts to cool down again, a recent rise in U.S. Treasury yields that has lent support to the dollar versus the yen could abate, he said.

"If you ask whether the dollar can completely break away from the '70s levels vs yen, I don't think that's necessarily the case," he said.

Sterling struggled to make headway after minutes of the Bank of England's February policy meeting were more dovish than expected.

The BoE minutes showed two officials sought a bigger increase this month in quantitative easing than was eventually agreed. This was seen as raising the chances of more asset-buying to support a fragile economy.

The pound edged up 0.1 percent to $1.5678, struggling to regain ground after shedding 0.7 percent on Wednesday.

The euro edged up 0.1 percent to $1.3261.

"EURUSD remains fairly bid largely due to both the short squeeze seen in EUR crosses, particularly EURCAD, EURAUD, EURNZD and potentially reserve managers recycling their USD revenues into euros as oil prices rise," analysts at BNP Paribas wrote in a note.

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