By Masayuki Kitano
TOKYO, April 7 (Reuters) - The dollar rallied against the yen
on Monday, making up for losses suffered after a weak U.S.
employment report, as traders focused on fund allocations by
Japanese investors at the start of a new financial year.
The dollar initially extended its slide versus the yen but
later turned higher, supported by dollar buying by Japanese
importers and talk that Japanese investors were selling the yen
against higher-yielding currencies.
"Such moves are said to be slower compared with the last
couple of years and the sizes are also apparently not that
large," said a vice president for foreign exchange sales at a
European Bank, referring to foreign investment by Japanese
institutional investors in fiscal 2008/09, which began April 1.
"But they seem to be persistent," he said.
Position unwinding by short-term speculators exacerbated the
price swings, market players said.
The dollar rose over 1 yen from the day's lows and rose as
high as 102.68 yen <JPY=> on electronic trading platform EBS.
It later trimmed its gains to stand at 102.53 yen for a gain
of nearly 1 percent on the day.
A rise above 102.95 yen would take the dollar to its highest
in nearly a month.
Higher-yielding currencies gained a lift against the yen due
to buying by Japanese investors, said a dealer at a foreign bank,
adding that such moves gave an indirect boost to the dollar
against the yen.
The euro rose 0.6 percent to 160.68 yen <EURJPY=R> while the
New Zealand dollar rallied 0.8 percent <NZDJPY=R> and the
Australian dollar rose 0.7 percent <AUDJPY=R> against the yen.
Against the dollar, the euro fell 0.4 percent to $1.5668
<EUR=>, with traders wary that European officials may say more
about the dollar's falls versus the euro ahead of a meeting of
Group of Seven finance ministers and central bank governors on
Friday.
MORE RISK-TAKING?
Analysts said the yen's declines were likely a sign of a
tentative recovery in risk appetite, or at least that an extreme
reluctance to take risks in markets may be drawing to a close.
"Overall, it seems that yen strength on the back of risk
aversion is over," said Koji Fukaya, a senior currency strategist
for Deutsche Securities.
Since the credit market turmoil has already roiled even
higher-rated mortgage-backed securities, it is hard to see the
situation getting much worse, Fukaya said.
While worries about overseas financial institutions' losses
have not completely disappeared, global investors seem to have
been reassured by factors such as the Federal Reserve's decision
in March to allow U.S. primary dealers to borrow funds via the
central bank's discount window, said Kimihiko Tomita, head of
foreign exchange for State Street Global Markets in Tokyo.
Traders had been betting that currencies of countries with
current account surpluses such as the yen would appreciate
against those of countries with current account deficits like the
dollar if investors were to shy away from risk, he said.
Such trades may have started to sour and led to some position
unwinding, Tomita said.
The U.S. Labor Department said on Friday that nonfarm
employment fell by 80,000 jobs in March, the biggest drop in five
years, while the jobless rate jumped to a a 2-
