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Dollar rebounds against yen, mark in late Tokyo trade

TOKYO: The dollar recouped early losses against the yen and the mark by late Tokyo trade, after a downward test failed because of solid bids at lows by overseas operators and talk of Bank of Japan buying, dealers said.

Participants here were divided over the possibility of a German credit easing at its regular council meeting today after a six basis point cut in the German repo rate on Wednesday.

A U.S. bank dealer in Singapore said there was a feeling that the Bundesbank might not cut rates today. "The thinking is that they would have to do it sooner or later but maybe not today, and longs are unwinding some of their positions."

A European bank dealer in Tokyo said: "The chances of a Buba rate cut are fifty-fifty."

He said: "Weak fundamental factors would guarantee a rate cut any time soon, but such action might also prove to the market that the German easing is coming to an end and that might push German long-term interest rates up." This is what the Bundesbank may want to avoid, he added.

The dollar slipped below Wednesday's New York lows of 1.4770 marks in afternoon trade on stop-loss and position- adjustment sales. Before the falls, Russian bids were seen of dollars for marks at 1.4780 marks, Singapore dealers said.

But the drops soon lost steam amid strong buying of dollars and marks for yen. Tokyo bank dealers said an Asian central banks' bids were detected of marks for yen and Swiss-based operators' buying of dollars for yen.

Some dealers speculated that the late afternoon rally may have been triggered by the Bank of Japan's dollar buying, saying the central bank seemed worried that stop-loss dollar sales might be induced at several points below 95 yen.

Despite the dollar's recovery against the yen, Tokyo dealers were not confident in the dollar's sharp gains.

There was talk that the Ministry of Finance may relax restrictions on individuals' foreign currency deposits following its steps to encourage institutional investors to invest money abroad on August 2, Tokyo dealers said.

Some Japanese trust banks and insurance companies were seen to have bought dollars in morning trade at the 96-yen level.

"But if dollar/yen breaks 96.00, the outlook will become very bearish," a dealer in Singapore said.

Doreen Siow in Singapore 65-8703092

Tatsuo Ito in Tokyo 81-3-3432-1396-Reuter