Yen eases against dollar in volatile Asian trade

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TOKYO: The yen weakened against the dollar in volatile Asian trade Tuesday, supported by speculation Japan may be ready to intervene after the unit neared a postwar high on worries over the US debt crisis.

However, analysts said any action by Tokyo to weaken the yen would have only a short-term effect, with the safe haven currency buoyed by external factors such as concerns that the US faces a downgrade, and European debt woes.

The dollar was at 77.44 yen in Tokyo afternoon trade, up from 77.16 yen in New York late Monday, at one point fetching 77.86.

The euro firmed to $1.4255 from $1.4248, and to 110.42 yen from 109.98 yen.

In early trade the greenback gained against the yen after the US House of Representatives on Monday approved a massive austerity plan to avert a debt default that would have wreaked havoc through the global economy.

After eight months of often angry negotiations, the Republican-led House voted 269-161 on a package backed by President Barack Obama to raise the US debt limit and enact at least $2.1 trillion in spending cuts over a decade.

The Democratic-led Senate was expected to approve the emergency measure in a noon (1600 GMT) vote Tuesday -- scarcely 12 hours before a midnight deadline by which the world's richest nation would run out of cash to pay its bills.

However, many analysts say the deal does not put the US fiscal position on a sustainable path and may not prevent the country from losing its top-notch AAA credit rating.

Speculation that Japan might step into currency markets lingered after the dollar fell briefly to 76.29 in New York on disappointing US manufacturing data, just pips away from its post-WWII low of 76.25 yen on March 17.

A strong yen erodes Japanese exporters' overseas earnings.

The Japanese finance minister said Tuesday his nation's currency was "strongly overvalued" as expectations grew that Tokyo would intervene to sell the yen.

"In principle, it is desirable for fundamentals to be reflected in the market, and in this sense, the yen is strongly overvalued," Yoshihiko Noda told a regular news conference.

Noda declined to comment on the prospect of currency-market intervention, but he said he has been "in touch" with overseas currency authorities.

"It's becoming increasingly difficult for speculators to buy the yen aggressively," Toshihiko Sakai, chief manager of forex and financial products trading at Mitsubishi UFJ Trust and Banking, told.

Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ, said that sharper gains in the dollar versus the yen are unlikely amid concerns over the possibility of a US sovereign downgrade and economic softening.

Data from the US Institute of Supply Management showing virtually no growth in the manufacturing sector offered further confirmation of the nation's stalled economy, bruising market sentiment.

The market is keeping an eye on US employment data due Friday for more indications.

"Any dollar rebound for now should be limited amid these concerns," Kamei said.

The dollar was mostly higher against other Asian currencies.

It firmed to Sg$1.2024 from Sg$1.2006 on Monday, to 1,051.30 South Korean won from 1,049.10, to Tw$28.84 from Tw$28.80, and to 42.07 Philippine pesos from 41.92.

The unit eased to 8,460.00 Indonesian rupiah from 8,475.00, while it was unchanged at 29.72 Thai baht. (AFP)