By Rika Otsuka
TOKYO, March 19 (Reuters) - The dollar fell against the yen
in seesaw trading on Wednesday, but kept its distance from a
13-year trough hit earlier this week after the Federal Reserve
delivered a smaller-than-expected interest rate cut.
The U.S. central bank on Tuesday slashed the benchmark
federal funds rate by 75 basis points to 2.25 percent, and
bolstered hopes that it is acting aggressively to contain damage
to the economy and financial system from housing troubles and a
credit crisis.
Financial markets had expected the Fed to lower interest
rates by 100 basis points.
Together with better-than-expected earnings reports from two
top investment banks, the Fed rate cut sparked a sharp rally on
Wall Street, that warmed up risk appetite and prompted investors
to buy back the U.S. currency.
The dollar recovered the psychologically key 100 yen level in
early Asian trade a day after it posted its biggest one-day gains
against the yen in a decade.
The U.S. currency then quickly trimmed gains as profit-taking
set in, while Japanese exporters, many of whom are now worried
that the dollar is still in a downward trend, took an opportunity
to sell dollars.
"The dollar was dragged down by profit-taking, while some
Japanese exporters sold dollars they hold," said Mitsuru Sahara,
senior vice president of forex at Bank of Tokyo-Mitsubishi UFJ.
"But activity is light, with market players still trying to
judge at what level the dollar will stabilise," Sahara added.
The dollar had slumped to record lows against the euro and
Swiss franc as it was met with heavy sell-offs amid worsening
credit woes, concerns that the U.S. economy might be already in
recession and the sudden downfall of investment bank Bear
Stearns.
The dollar climbed as far as to 100.45 yen then fell to
around 99.20 yen <JPY=>, down 0.8 percent from late U.S. trading
on Tuesday. The U.S. currency surged 2.6 percent against the yen
the previous day.
It had tumbled to as low as 95.77 yen on Monday on electronic
trading platform EBS, the lowest in 13 years, after the Fed took
the emergency step of cutting its discount rate on Sunday and
opened up discount window lending to major investment banks, a
tool not used since the Great Depression.
The steps, which accompanied JPMorgan Chase & Co's decision
to buy stricken Bear Stearns, was seen as highlighting the depths
of the damage caused by the tumult in credit markets and sparked
a dollar sell-off.
The euro rose 0.5 percent from late New York trade to around
$1.5704 <EUR=>, but was below a record $1.5905 struck on Monday.
The dollar slid 0.6 percent against the Swiss franc to 0.9958
franc <CHF=>, falling back below parity.
Many market participants said the dollar is likely to resume
its slide after market holidays later this week as its yield
appeal is seen deteriorating further.
A Reuters poll showed on Tuesday that all primary dealers
surveyed after the Fed announced its rate decision expect the
central bank to lower interest rates in April. []
"Investors are unlikely to stop selling the dollar as the
credit crisis originated in the United States has not gone yet,"
said Tsutomu Soma, senior manager at the foreign assets
department at Okasan Securities.
Japanese financial markets will be closed on Thursday for a
national holiday, followed by a market holiday in most of Asia,
Europe and the United States on Friday.
The Bank of Japan is set to be placed in the hands of a
temporary governor when current BOJ Governor Toshihiko Fukui
retires later on Wednesday, with the latest candidate to replace
him rejected by parliament.
The ongoing political drama over who will be the next central
bank chief is a negative factor for the yen, but so far, market
players have not used it to sell the currency, traders said.
Also on Wednesday, the head of a Japan auto group head said
he would not ask the government to intervene in the currency
market to prop up the dollar's exchange rate against the yen. A
strong yen makes Japanese exports less competitive abroad.
(Reporting by Rika Otsuka)
