Concentration in derivatives business is nothing to fear, Morgan executive says

Section:

By Christina Fincher
Reuters
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=4711805

LONDON, March 31 -- The yen smashed through a key
psychological barrier to hit a four-year high against the
dollar on Wednesday as investors sensed Japan was
scaling back yen-selling intervention going into the new
fiscal year.

The yen rose at breakneck speed after hurdling 105 per
dollar, previously considered the tolerance threshold for
Japanese policymakers keen to prevent a strengthening
yen jeopardising the country's export-led recovery.

Comments from Japanese Finance Minister Sadakazu
Tanigaki that Japan had grown resilient to the stronger
yen gave the currency another boost in the European
session, lifting it to 103.45 to the dollar -- its highest
since April 2000.

"The dollar's break through 105 yen implies more
acceptance of yen strength from Japanese
policymakers," said Bilal Hafeez, foreign exchange
strategist at Deutsche Bank.

"Economic fundamentals are pointing to further yen
strength and it will be harder for Japan to justify
intervention."

By 1215 GMT, the yen was off session peaks at
103.85 per dollar but still on track for its sharpest
one-day rise against the greenback this year.

Data on Wednesday showed Japan threw more than
4.7 trillion yen at the foreign exchanges in March,
bringing its year-to-date intervention to more than 15
trillion yen.

The euro outperformed the dollar but also succumbed
to broad-based yen strength, falling more than 1 percent
to 126.63, its lowest since last November.

Expectation of continuing improvement in Japan's
economic outlook also supported the yen as investors
positioned for a robust quarterly "tankan" business
survey from the Bank of Japan at 2350 GMT.

A Reuters poll forecast the survey would reveal
heightened optimism among big manufacturers who
are benefiting from robust exports and high-tech
demand.

"There's a lot of optimism about the Japanese economy.
The Nikkei had a good run over the last 12 months and
we have the tankan overnight which is expected to show
further improvement," said Ryan Shea, senior international
economist at Bank One in London.

Nevertheless, he said it was "premature" to expect the
Bank of Japan to step out of the market completely.

The 105 level in dollar/yen had long been seen as crucial
for Japanese officials, worried a stronger yen could derail
the export-led recovery that is taking hold in Japan after a
decade of stagnation.

Lee Ferridge, head of global currency strategy at Rabobank
agreed the threat of yen-selling intervention had not
disappeared.

"The line in the sand at 105 has gone, clearly, but I
wouldn't be surprised to see another one above 100," he
said.

The euro was up half a percent against the dollar at
$1.2225, slightly below earlier one-week highs but up
almost two cents from this year's low hit on Monday.

News of a fire at a BP Plc refinery in Texas bolstered
the euro against the dollar in early trade, particularly
after the FBI last week warned of a security threat to
refiners in that area.

BP said the cause of the fire was unknown but added
it did not appear to have been started intentionally.

Dealers said fading expectations of an interest rate cut
from the European Central Bank on Thursday were also
supporting the single currency.

"Expectations for an ECB rate cut are now much
reduced, and euro/dollar has benefited from that," said
Adam Cole, senior currency strategist at Credit Agricole
Indosuez.

The Chicago purchasing managers' index, due at 1500
GMT, is forecast to show a fall to 61.5 in March from 63.6
in February. U.S. factory orders, due at the same time,
are expected to to show a rise of 1.5 percent in February
after a 0.5 percent decline in the prior month.

However, reaction to both sets of data may be muted
ahead of Friday's key U.S. payroll report, dealers said.

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