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Dollar under pressure but supported by G7 talk

TOKYO: The dollar was a touch easier on the yen but confined to a tight range ahead of key US data and a speech by Fed chairman Alan Greenspan shortly, while casting an eye to next week's G7 finance ministers meeting.

Selling by U.S. operators and Japanese exporters knocked the the dollar to a low of 105.53 yen, but it found support on talk that the Bank of Japan (BOJ) may face pressure at the Group of Seven (G7) meeting to take additional measures to ease credit.

The speculation was sparked by a Jiji news agency report overnight that quoted international monetary sources as saying that U.S. authorities are seeking a further credit easing by the BOJ as a condition for cooperating with Japan in the forex market to prevent a rise in the yen.

But dealers in Tokyo remained largely sceptical and do not view current dollar/yen levels as critical.

"It's highly unlikely. What else could the BOJ do? Leave more surplus (in the market) which is not going to flow outside the interbank market?" a senior foreign bank dealer said.

"It's meaningless to leave even more massive funds in the money market since banks are not lending to private sectors. The BOJ will probably keep larger surpluses in the money market a little longer, perhaps until the G7 finishes, and that's it."

The dollar was at 105.60/68 yen against the U.S. close of 105.90 yen on Wednesday. Dealers also reported earlier speculative selling aimed at triggering stop-loss sales rumoured placed at 105.40/50 yen.

Officials appear to have been trying to pour cold water over the recent pre-G7 speculation. Japanese Finance Minister Kiichi Miyazawa told a news conference on Wednesday that he did not expect any clashes to emerge in discussions at the G7 meeting.

U.S. Treasury Secretary Lawrence Summers also said overnight the G7 meeting would have no particular focus beyond discussion of macroeconomic developments and the state of emerging market economies.

Focus is now on how much surplus the BOJ would leave on January 14, the last day of the bank reserve period, and on January 17, the starting day of new bank reserve period.

There was speculation in the market earlier that the central bank may bring the net surplus in the money market to its usual one trillion yen level by January 17.

The BOJ will also hold its next Policy Board meeting on January 17.

The BOJ has been draining funds from the money market constantly since January 4, with a projected net surplus at 10.7 trillion yen on Thursday.

The euro was also supported on lows against the yen, but the upside remained limited on selling to protect options with strike price rumoured at around 110 yen.

Against the dollar, the euro found firm support at around $1.03, despite a surprise fall in German output industrial output data overnight.

German output fell 0.5 percent month-on-month in November, well below market expectation of around one percent, but analysts said the numbers were likely to be revised up and did not change the outlook for faster growth.

Elsewhere, the Australian dollar surged to a three-month high above $0.6630 after Australia's employment data showed a rise of 55,800 jobs in December, far beyond market expectations of a 23,500 gain. The dollar was now at US$0.6622/32 against a pre-data level of US$0.6580/90.

The market was also nervously awaiting word from Federal Reserve chairman Alan Greespan's speech later in the day as well as U.S. December Producer Price Index (PPI) and retail sales.

Reaction was limited to Japan's current account surplus, which fell 31.0 percent in November from a year earlier to 809.7 billion yen.-Reuters