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Dollar eases vs yen ahead of Greenspan

TOKYO: The dollar was easier against the yen in Tokyo trade on Wednesday, led by a wave of profit-taking before the second round of Humphrey-Hawkins testimony by US Federal Reserve Chairman Alan Greenspan later.

The strength of the US currency in recent days has prompted overseas operators to lock in their gains, dealers said.

The European single currency strengthened against the dollar after resurfacing above parity overnight, helped by speculation that an interest rate hike might be near in the 11-nation euro zone.

While the market did not expect fresh news regarding US monetary policy at Greenspan's semi-annual testimony starting, dealers said they were wary about driving the dollar higher amid the absence of strong incentives.

The dollar stood at 110.18/21 yen compared with 110.82 yen in New York late on Tuesday.

The euro, which rose to a one-month high of $1.0078 overnight, was quoted at $1.0067/71, up from $1.0038 in New York late on Tuesday.

Against the yen, the euro stood at 110.95/111.03 yen, down from 111.21 yen in New York late on Tuesday. Greenspan said in testimony last week there was little evidence that recent rises in official and market interest rates had succeeded in slowing down the US economy.

His comments were interpreted by the market as a clear indication the Fed would continue to raise interest rates in the months ahead.

"We're not expecting anything new from today's testimony, but Greenspan may imply that the Fed might raise interest rates by 0.50 to 0.75 percentage point in the next six months or so," said a Japanese city bank dealer.

But volatility in US stock prices in recent days may prevent him from sounding too hawkish, he added.

On Tuesday, the Dow Jones industrial average gained 0.83 percent to end at 10,304.84, after dropping more than 115 points early in the day. The Nasdaq composite closed lower for a second consecutive day, shedding 0.67 percent to 4,382.12.

Regarding the euro, which rose to a six-month high against the yen overnight at 111.77 yen, dealers and analysts said they were expecting more unwinding of hedging positions by Japanese life insurers and other large investors.

"Japanese life insurers have been hedging a lot in the euro since about a year ago. The euro's rally on euro/yen short covering, which began yesterday, will probably continue for some time," said Taisuke Tanaka, foreign exchange strategist at Credit Suisse First Boston.-Reuters