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Dollar slips vs yen, market ponders Greenspan

TOKYO: The dollar retreated against the yen in late trade on Monday as the market looked nervously ahead to a speech by US Federal Reserve Chairman Alan Greenspan later this week.

Traders said the focus was very much on how Wall Street performed ahead of Greenspan's testimony to Congress on Thursday, at which some believe he may signal a more hawkish stance on US interest rates.

The dollar also came under pressure on speculation that Japanese investors were set to repatriate gains on interest revenue from US Treasury holdings.

The dollar slid to 108.13 yen, its lowest level in a week, triggered by selling from speculative overseas operators. Its fall accelerated after it hit stop-loss sales below 108.60 yen. The currency had eased to 108.75 in New York on Friday from a 109.76 high.

But the dollar's declines in Tokyo were tempered by buying interest from Japanese investors below 108 yen and by option-related buying.

The euro gained against the dollar but flows were sluggish ahead of key news affecting US and European interest rates later this week.

The yen gained across the board in cross trade. The euro was hurt against the yen partly on news that Russia and the London Club of creditor banks agreed a deal to reschedule $31.8 billion of Russia's debt. Traders cited fears the deal could have a negative impact on some European banks.

The euro was at $0.9903/08 in late Tokyo compared with its US close of $0.9864 on Friday, and 107.10/25 yen against 107.28 in New York.

"Long liquidation emerged after a number of failed attempts to breach the 110 yen milestone (on euro/yen). Operators likely want to lighten positions before a series of major events in the latter part of the week," a dealer at a major city bank said.

As well as Greenspan's scheduled first leg of his semi-annual Humphrey-Hawkins testimony on Thursday, the US January producer price index will also be released that day followed by the January consumer price index on Friday.

"By the end of this week, we will likely have a better idea of the rate tightening scenario through May. And that may adversely affect the stock and bond markets," the bank dealer said.

The Dow Jones industrial average fell 2.05 percent or 218.42 points to 10,425.21 on Friday. It lost over 500 points last week and was down 11.07 percent from its January 14 closing high of 11,722.98. The NASDAQ Composite Index also fell around two percent on Friday.

In Europe, the key event will be Germany's closely-watched Ifo business climate index on Thursday. The European Central Bank will also hold its governing council meeting on Thursday. The Bank of England will release its quarterly inflation report, also on Thursday.

Dealers also attributed the dollar's fall partly to speculation that Japanese investors are set to convert interest income on US Treasury holdings back into yen. Interest payments are expected to occur on Tuesday.

"Because it is close to the book-closing period (at the end of March), investors are expected to mainly put such interest revenue back into yen rather than funnel it back into Treasuries," a dealer at another major city bank said.

"I would assume this amount would be quite substantial," he added.

Japanese investors held $313.9 billion worth of US Treasuries as of November 1999, according to the US Treasury Department. The dollar had gained in early trade, hitting a high of 109.07 yen after Japan's December current account showed a surplus of 871 billion yen, well below market expectations.

Dealers expect buying interest from Japanese accounts to temper the dollar's falls. Near-term support is seen near 107.50 yen. On the other hand, the dollar remains reined in near 110 yen, where knock-out options were set to expire on Friday and on January 24. -Reuters