By Masayuki Kitano
TOKYO, Aug 13 (Reuters) - The U.S. dollar fought its way
higher on the yen on Friday following a report Japan's prime
minister and the head of its central bank would meet to discuss
ways to deal with the currency's export-sapping strength.
The dollar clawed its way to 86.12 yen, up 0.3 percent from
late U.S. trading on Thursday, though traders reported tough
resistance ahead of stops at 86.30/50.
The latest lurch higher came after the Asahi Shimbun reported
Japanese Prime Minister Naoto Kan and Bank of Japan Governor
Masaaki Shirakawa may meet as early as next week to discuss the
yen's strength and possible responses.
A government source later confirmed that the government and
the BOJ are coordinating to set up such a meeting.
Speculation has been intense that authorities would finally
act on the yen given its strength was hitting stocks and exports.
The BOJ confirmed it had checked forex rates on Thursday but
emphasised it had no levels in mind.
In the wake of the yen's rise to a 15-year high against the
dollar of 84.72 yen earlier this week on trading platform EBS,
market players say the chances of yen-selling intervention at
some point cannot be ruled out.
The focus now is on what kind of specific measures the
government or the BOJ may come up with to curb yen strength.
Judging from what happened in late November to early
December, there is a chance that any extra monetary easing steps
that the Bank of Japan may be mulling could be unveiled before
the possible meeting between Kan and Shirakawa, said Masafumi
Yamamoto, chief FX strategist Japan for Barclays Capital.
"I think there will be a lot of disappointment if any
monetary easing steps by the Bank of Japan are viewed as being
ineffective," Yamamoto said.
"In that case, authorities may be forced to conduct actual
currency intervention," he added.
Possible options for the BOJ may include steps such as trying
to expand the amount of banks' current account balances parked at
the BOJ, expanding the amount of its fixed-rate fund supply
operation or extending the maturity, Yamamoto said.
The BOJ held an emergency meeting on Dec. 1 and unveiled a
fixed rate fund supply operation, after the dollar fell below 85
yen in late November. That measure came ahead of a meeting
between then-PM Yukio Hatoyama and Shirakawa.
Market players say Japanese authorities seem unlikely to
intervene unless the dollar drops below 85.00 yen and gets closer
to its record low of 79.75 yen hit in 1995, or the greenback's
drop against the yen becomes more volatile.
Analysts say Japanese authorities do not seem eager to
"The Japanese authorities have no appetite for FX
intervention," argued analysts at JPMorgan.
"Not only do they doubt the efficacy of intervention, but
yen-selling would be difficult to justify, given strong G7
rhetoric against currency manipulation," they wrote in a note to
clients. "It is politically unpopular given the magnitude of the
losses on Japan's FX reserve."
The euro edged up 0.3 percent to $1.2866, with support lower
down at its 100-day moving average at $1.2803.
Traders felt it could hold in a $1.2762/1.2897 area for now
with the risk of a short-squeeze into euro zone growth data due
Data from the U.S. includes retail sales, consumer confidence
and consumer prices (CPI) and markets fear disappointment.
Matthew Strauss, senior fixed income and currency strategist
at RBC Capital Markets, cautioned that the CPI report could be
more market-moving this time.
"With deflation talks dominating economic discussions and
comparisons with Japan's lost decade now a common pastime, CPI
data pose a major risk to USD tonight, maybe even more so than
retail sales," he said. "It is difficult to see how a soft
reading would not negatively impact the dollar."
(Additional reporting by Wayne Cole and Reuters FX analyst
Krisha Kumar in Sydney; Editing by Joseph Radford)