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Dlr in retreat vs yen but mood stays bullish

TOKYO: The dollar retreated against the yen by late afternoon on Wednesday after options-linked offers prevented it from edging to fresh five-month highs, but sentiment towards it stayed basically bullish.

Dealers said the yen was still looking vulnerable on talk that offshore funds are re-establishing carry trades -- borrowing cheaply in yen to buy mainly U.S. assets.

Sentiment for the dollar versus the yen grew even brighter after news on Tuesday that U.S. nonfarm productivity jumped a stronger-than-expected 5.0 percent in the fourth quarter, and unit labour costs fell a stunning 1.0 percent.

In morning trade, the dollar rose as high as 109.67 yen but it fell short of its overnight high of 109.72 yen and sagged to 108.88 yen by late afternoon.

The dollar was pressured by heavy option triggers lined up from above 109.70/80 yen and selling by Japanese exporters.

But dealers said the support was firm in the 108.70/80 yen area, where stop-loss orders are seen, as dealers and investors are seen defending this from being triggered as they are still seen dollar-long.

The dollar was quoted at 108.90/95, down from Tuesday's U.S. close of 109.46 yen.

The euro slipped back to 107.51/64 yen from around 108.30, but edged up on the dollar, standing at $0.9883/93 compared with $0.9854 in the U.S. on Tuesday. The euro was at 107.89 yen in late New York on Tuesday.

Dealers said Japanese exporters were selling euro/yen on forward contracts at around 108.30 yen as this allows them to make a reasonable 108.00 level for bookclosing in March.But the euro was pinned by upbeat German industrial data due out on Wednesday. The median forecast was a rise of 1.3 percent in December.

Dealers also said the strength of German equities, which was buoyed by the German government's commitment to tax cuts, was supporting the euro.

Back-tracking over German tax reforms had added to downward pressures on the euro, dealers said.

In other crosses, sterling fell sharply to the yen, standing at 174.58/70 yen from around 175.30 yen, after telecom giant Nippon Telegraph and Telephone Corp (NTT) President Junichiro Miyazu commented on media reports that mobile phone subsidiary NTT Docomo is considering a bid for U.K. mobile phone operator Orange.

Miyazu, asked about the reports at a regular briefing, said: "I've got nothing to say because they're not doing anything... I haven't heard anything from Docomo but I don't think they have done anything like that.-Reuters