* Dollar trims gains vs yen and euro, off Wednesday's highs
* Yen pressured due to worry about Japan's economy
* BOJ keeps interest rates unchanged at 0.10 pct
By Satomi Noguchi
TOKYO, Feb 19 (Reuters) - The dollar dipped on Thursday after
hitting a six-week high against the yen and a three-month peak
versus the euro, but it stayed firm as U.S. efforts to tackle the
housing crisis boosted its safe-haven appeal.
The yen is coming under pressure due to worries about the
Japanese economy -- which suffered its deepest contraction in
more than three decades in the latest quarter -- and political
uncertainty as voter support for Prime Minister Taro Aso sinks.
[] []
The Bank of Japan left its key policy rate unchanged at 0.10
percent on Thursday, as expected, but extended the deadline for
its buying of commercial paper to help corporate funding as it
battles the credit crunch, with the economy in its deepest slump
in more than the three decades. []
With little room to cut overnight rates after bringing them
down to near zero late last year, the BOJ is focusing on ways to
improve funding conditions for financial institutions and
companies in an economy hit hard by the global slump.
"There is an emerging view that the yen may not be so
appropriate to buy, unlike before, at times of risk aversion,"
said Minoru Shioiri, chief manager of forex trading at Mitsubishi
UFJ Securities.
Political uncertainty in Japan was adding to gloom about the
economy, in contrast with the U.S. and European governments'
swift moves to combat the global recession, traders said.
"The U.S. was the first to be hit hard by the crisis but
could also be the first to get out of it, with quick policy
actions," Shioiri said.
The dollar dipped 0.4 percent from late New York trade to
93.45 yen <JPY> but stayed within reach of Wednesday's high of
93.96 yen on trading platform EBS, the highest since Jan. 7.
"Credit default swaps on Japanese sovereign debt have jumped,
keeping those who believe the dollar/yen rate has a strong
correlation with CDSs reluctant to pick up the yen," said a
portfolio manager at a Japanese asset management company.
Five-year CDS on Japanese government debt <JPGV5YJPAC=MP> hit
a record high of 130 basis points on Wednesday as political
uncertainty and worries about the country's fiscal position grew.
The sovereign CDSs had not traded by Thursday afternoon in Asia,
with indicated prices of 90-120 basis points. []
The euro edged up 0.1 percent against the yen to 117.60 yen
<EURJPY=R>.
The euro climbed 0.4 percent to $1.2585 <EUR=>, recovering
from a three-month low of $1.2513 touched the previous day. But
worries about euro zone banks with exposure to struggling Eastern
European countries kept investors wary of the euro, capping its
gains, traders said.
QUESTION ON YEN SAFETY
U.S. President Barack Obama pledged up to $275 billion on
Wednesday to help stem a wave of home mortgage foreclosures, part
of a broad effort using massive sums of government money to lift
the country out of recession.[]
Hopes that Obama's plan would stabilise the U.S. housing
market lent the greenback modest support and left it as the main
alternative for investors seeking a safe place to park their
money, traders said.
"The yen's broad surge seen earlier stemmed largely from
liquidation of yen carry trades. So once those flows are through,
the yen's rise should naturally abate," said Masamichi Koike, a
joint general manager of trading desk for Sumitomo Mitsui Bank.
The yen typically rises when the market faces severe stress,
because investors buy the yen back to liquidate risky positions
in carry trades. The yen rose to 87.10 yen to the dollar on Jan.
21, its highest since July 1995.
In yen carry trades investors borrow the low-yielding yen to
fund investments in higher-yielding currencies and assets.
(Additional reporting by Rika Otsuka; Editing by Michael Watson)
