* USD holds ground, though close to recent lows
* Cross/yen gains as stocks, commodities support risk-taking
* Traders debate Japan's next move
By Charlotte Cooper
TOKYO, Dec 2 (Reuters) - The yen was on the back foot against
higher-yielding currencies as rising stocks and commodity markets
encouraged a pick-up in risk-taking on Wednesday, while the
dollar broadly held its ground.
Traders and analysts in Japan were still chewing over steps
by the central bank the previous day to attack deflationary
pressures, which left many disappointed, and were keen to hear
the outcome of a meeting between Prime Minister Yukio Hatoyama
and Bank of Japan Governor Masaaki Shirakawa expected later.
Many in the market doubted the Bank of Japan's new 0.1
percent funding operation, aimed at keeping short-term rates
down, could slow a fall in the dollar for long and were looking
for hints on what Japanese authorities might do next.
The greenback hit a 14-year low of 84.82 yen <JPY=> last week
as concerns over debt problems in Dubai saw investors unwind risk
trades funded by the yen, which pushed the Japanese currency up.
Traders said Japanese exporters, nervous they would not get
better exchange rates, were ready to sell into dollar and euro
rallies against the yen, which could create headwinds to gains.
"Dollar/yen will be very heavy on top but in the meantime the
receding concern on the Dubai problem has reduced demand for U.S.
Treasuries and flight to quality," said Masafumi Yamamoto, chief
FX strategist Japan at Barclays Capital.
The dollar <JPY=> stood at 87.00 yen, up 0.4 percent on the
day, but struggled to stay above that level. Some traders said if
it could move back above 87.50 yen, a resistance area in the past
two sessions, that could herald a stronger push higher.
The euro rose 0.4 percent to 131.28 yen <EURJPY=R> and firmed
to $1.5094 <EUR=> after gaining 1 percent and 0.5 percent
respectively the previous day. It was near a recent 16-month high
of $1.5145 set on trading platform EBS, with strong trendline
support seen at $1.4900 and then at $1.4860.
The dollar index <.DXY>, a measure of its strength against a
basket of six currencies, was steady at 74.411, not far above
last week's 16-month low of 74.17.
SOME IMPACT ON BORROWING COSTS
The BOJ said after an emergency meeting on Tuesday it would
provide 10 trillion yen ($115 billion) in three-month funds at a
fixed rate of 0.1 percent, relieving government pressure to act
against deflation and avert another recession. See [].
Tuesday's decision was seen as a way to avoid a return to a
narrow form of quantitative easing, under which the BOJ slashed
rates to zero and flooded markets with cash in 2001-06.
Yen borrowing costs did fall, with the three-month interbank
rate <JPY3MFSR=> reaching its lowest level since May 2006 on
Tuesday to fix at 0.29375 percent.
But it remained above the equivalent dollar rate <USD3MFSR=>,
which was fixed at 0.25531 percent, and traders were sceptical
this would support the dollar for long, with some readying to go
long yen once the dollar rises above 87.00 yen. []
A BOJ official said the central bank would not rule out any
policy options and it must be aware of the risk to inflation
expectations if the yen's rise was seen to harm the economy.
[]
The government is expected to prepare an economic stimulus
package this week to shore up a fragile economy. []
"The focus now shifts to the government and the size of the
supplementary budget and whether there will be any action by the
Ministry of Finance in the foreign exchange market," Barclays
Capital's Yamamoto said.
Traders say unilateral action by Japan to curb the yen's rise
would be tricky without consent from other world economic powers,
and many doubt the authorities would want to step in before the
dollar fell towards 80 yen, or even neared its 79.75 record low.
"Until then they just want to talk the dollar/yen up a bit,"
one trader at a Japanese bank said.
Markets will be watching U.S. data later, ahead of monthly
jobs numbers due on Friday. A November employment report by
Automatic Data Processing at 1315 GMT is expected to show 155,000
jobs lost in the month after 203,000 lost in October.
With worries about Dubai's debt problems fading, commodities
and stock markets gained. The rise in riskier assets underpinned
higher-yielders such as the Australian and New Zealand dollars.
The Aussie <AUD=D4> rose 0.3 percent to $0.9278, after a jump
of more than 1 percent on Tuesday. Part of the rise was due to
the third straight monthly hike in the cash rate by the Reserve
Bank of Australia and higher gold prices <XAU=>.
It gained 0.5 percent to 80.62 yen <AUDJPY=R>.
(Additional reporting by Satomi Noguchi and Rika Otsuka in Tokyo
and Anirban Nag in Sydney; Editing by Joseph Radford)
((Email: charlotte.cooper@thomsonreuters.com; +81 3 6441 1870;
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