Dollar leaps as Japan seeks stability
THE dollar bounced against the yen today, prompting speculation that the Bank of Japan had intervened in foreign exchange markets for the second day in a row.
The sharp move came after a key barometer of the Japanese economy showed business optimists outnumbered pessimists for the first time in nearly three years.
In late Asian trading, the dollar jumped half a yen from the day's lows to 111.52 yen, with traders reporting large bids consistent with intervention.
The Bank of Japan stepped into the market on Tuesday to drive the yen lower against the dollar, ignoring a recent G7 statement calling for more flexibility in exchange rates.
Officials refused to confirm today's suspected action, but BoJ Governor Toshihiko Fukui said stable exchange rates were essential for Japan's fight against deflation. 'We are closely watching currency markets and long-term interest rates' he said.
Finance Minister Sadakazu Tanigaki said he would take 'decisive' steps to keep a strong yen from hurting the economy.
Policymakers are worried that a strong yen - currently close to three-year highs against the dollar - could snuff out Japan's fragile export-led recovery.
The government's hopes of keeping the yen at around 130 to the dollar have been hit by signs that Japan's corporate sector is starting to recover, a trend that boosts the stock market and brings foreign investment into the country, keeping the currency buoyant.
Earlier, the BoJ's Tankan survey of business sentiment registered plus one in September compared with minus five in June. It was the first time the closely-watched gauge of the economy had been above zero since December 2000.
Economist Rochard Jerram, at ING Financial Markets in Tokyo, said: 'The economy is getting better, manufacturing is improving and the cycle is broadening out through the economy, leading to improved confidence among smaller firms.'
But some experts cautioned that the survey did not take account of the yen's recent surge, which threatens to eat into exporters' profits.
