* Dollar drops through 83.50 yen to latest 15-year low
* Euro flounders near record trough on Swiss franc
* Market testing water for next trend move
By Hideyuki Sano
TOKYO, Sept 8 (Reuters) - The yen struck a fresh 15-year high
against the dollar and edged closer to a nine-year peak against
the euro on Wednesday on a flare-up in worries over euro zone
banks, prompting market players to test the will of Japanese
authorities to intervene.
Persistent yen buying from investors seeking a temporary
refuge in the yen in the face of European bank woes and U.S.
slowdown worries helped to push the greenback through a major
option trigger below 83.50 yen.
Among big buyers of the yen was said to be a major Japanese
investor, which could be repatriating funds from its investments
abroad ahead of its half-year book-closing at the end of
September.
"The euro looks precarious again. The dollar will be weak
ahead of the mid-term election. That leaves the yen as the only
currency to buy especially after (Bank of Japan Governor)
Shirakawa made only vague comments about the yen," a U.S. bank
trader said.
BOJ Governor Masaaki Shirakawa reiterated on Wednesday his
reluctance to return to quantitative easing although he indicated
the central bank was weighing its options on how to deal with the
economic impact of the yen's strength.
Finance Minister Yoshihiko Noda repeated his warning that he
will take decisive action if necessary.
"Officials are making some comments and perhaps they may be
preparing for intervention. But the market does not think they
will do it now," says a trader at a Japanese bank.
The dollar fell as far as 83.34 yen <JPY=>, down 0.5 percent
on the day and the cheapest since 1995. Many traders are now
eyeing another option barrier at 83.00 as the next target.
The euro fell 0.5 percent to 105.80 yen <EURJPY=R> at one
point, threatening to revisit August's nine-year low just below
105.50.
"The euro's weakness is worrying. If the euro becomes
unstable, there could be more selling in euro/yen, which would
drag dollar/yen lower too," said a trader at a Japanese trading
house.
Yen strength has stirred up speculation whether Japan would
intervene to dampen it.
Michael Hasenstab, Franklin Templeton's co-director of
international bonds, said more quantitative easing steps by Japan
were possible and could weaken the yen, and this prompted
Templeton to hold on to short yen positions versus the dollar and
other Asian currencies. []
"The only source of strength in the Japanese economy is
exports. And with the yen sub 90 (per dollar), they will be under
extreme pressure," Hasenstab told the Reuters' Dealing Room
online chatroom.
Japanese capital data showed China continued to buy the yen
in July, snatching up a net 640.8 billion yen ($7.65 billion) in
Japanese bills, bringing its total net buying year-to-date to 2.3
trillion yen. []
Reserve diversification by China and some other countries has
been a reason behind the yen's rally in the past few months.
The euro was pinned at $1.2710 <EUR=>, having dived from
$1.2870 on Tuesday and a three-week high of $1.2920 the day
before. Traders are now looking for a test of support around
$1.2625, though they are not exactly keen to go long on
the U.S. currency either.
"It's the same old ugly contest -- which currency is the
least unattractive," said a dealer at a local bank in Sydney.
The euro eased slightly on the day to 1.2820 francs
<EURCHF=R>, just above the previous day's record low of 1.2812
francs, and traders saw little chart support until 1.2700.
The euro held near a record low on the Australian dollar set
on Tuesday below A$1.3900 <EURAUD=R>.
Irish bond spreads hit fresh peaks on Tuesday on concerns
about the health of the European banking sector putting more
pressure on Ireland. Ireland is trying to hammer out a deal with
the European Commission over the future of nationalised lender
Anglo Irish Bank [] and it extended its guarantees for
short-term bank liabilities on Tuesday. []
The market is still trying to ascertain how risk-averse it
should be after a report reignited concerns about European
sovereign debt and banks' exposure on Tuesday.
Further risk reduction trade cannot be ruled out as hedge
funds are said to have been largely absent over the summer period
and have not yet come back in force, and need some direction to
make money in the last part of the year.
"These guys have to make money and they have no positions at
the moment. So when they come back to the market ... they're all
going to pile in," said Robert Ryan, FX strategist at BNP Paribas
in Singapore.
(Additional reporting by Wayne Cole in Sydney and Charlotte
Cooper in Tokyo; Editing by Joseph Radford)
