* Market wary of possible BOJ, Japan govt action on yen
* Short-covering, Japanese importer buying supports dollar
* But selling interest seen likely to emerge near Y85.00
* Dollar drop could accelerate if Y83.50 breached
* Dollar burdened by sliding yields, talk of Fed easing
By Kaori Kaneko
TOKYO, Aug 25 (Reuters) - The yen pulled back from 15-year
highs on the dollar and a nine-year peak on the euro on Wednesday
due to chances that Japanese authorities may take steps such as
yen-selling intervention to stem the yen's rise.
The caution initially stemmed from a Nikkei business daily
report saying Japan's Ministry of Finance may consider unilateral
yen-selling market intervention if speculators drive up the
currency. []
Finance Minister Yoshihiko Noda reinforced that view, telling
reporters on Wednesday that recent yen moves were one-sided and
Tokyo will respond appropriately when necessary. []
The yen's surge has also nudged up the previously negligible
chances of monetary easing by the Bank of Japan before its Sept.
6-7 rate review, sources told Reuters. The most likely step would
be to expand the amount or extend the duration of a short-term
funding operation. []
Japanese Prime Minister Naoto Kan said he feels a sense of
crisis over the strong yen and wants to show a firm response
soon, Jiji news agency reported on Wednesday. []
"Combining the Nikkei's report, and comments from the prime
minister and finance minister, the market view on the possibility
of Japan's intervention if the yen appreciates further has been
raised," said Tomohiro Nishida, treasury deparment manager at
Chuo Mitsui Trust and Banking.
"But it's a question of whether Japan will intervene at the
current forex level."
The dollar rose 0.7 percent against the yen to 84.45 yen
<JPY=> on short-covering, having pulled up from a 15-year low of
83.58 yen hit on trading platform EBS on Tuesday. There was also
some talk of dollar-buying by Japanese importers.
Traders said, however, that the dollar's gains were likely to
be limited with selling interest seen likely to emerge if it
rises toward 85.00 yen.
Some were sceptical about just how effective any intervention
by Japan alone would be.
"The bottom line is that it will be difficult to reverse the
yen's firm trend completely even with monetary easing by the BOJ,
which the market has priced in, along with solo intervention by
Japan," said Jun Kato, senior manager of investment at Shinkin
Asset Management.
"Such moves by the Japanese authorities might weaken the yen
temporarily but there are market players who are waiting to sell
the dollar on its rise. There's a possibility the yen may
strengthen even more."
Traders said the dollar's fall could accelerate if it drops
below 83.50 yen, at which the greenback had strong support in
June 1995 after hitting its all-time low of 79.75 yen in April of
that year. There is talk of option barriers on the downside at
levels such as 83.00 yen, they said.
The euro climbed 0.9 percent to 106.97 yen <EURJPY=R> after
touching a nine-year low of 105.44 yen on EBS on Tuesday.
But the market mood is still one of yen buying as the latest
dismal U.S. home sales data and a renewed slide in stocks has
sent investors scrambling for safe-havens.
Traders were also closely watching how far the Nikkei average
<> will fall, calculating that the steeper its losses the
more possible it is that Japanese authorities might finally bite
the bullet and intervene.
The euro's upside was limited after Standard & Poor's
downgraded Ireland to AA- and warned the outlook was still
negative, fanning worries about euro zone sovereign debt and the
banking system. [].
The euro inched up 0.3 percent to $1.2664 <EUR=> after
touching a 6-week low of $1.2588 on EBS on Tuesday.
The single currency fared less well against the Swiss franc,
collapsing to a record low around 1.3015 francs <EURCHF=> before
edging back to 1.3050 francs.
"The overnight session was characterised by a rather sharp
round of risk aversion that started late yesterday, gained
momentum during the European session and became entrenched
following shockingly soft U.S. data," analysts at RBC
Capital Markets said in a note.
"The yen and Swiss franc were the undisputed winners, with
the Aussie and Canadian dollars making up the rear."
A 27 percent drop in existing U.S. home sales []
caused much of the damage, knocking the S&P 500 <.SPX> down 1.5
percent and sending Treasury yields to new lows [].
The data was so bad it sparked talk that the Federal Reserve
could embark on a fresh round of quantitative easing, which
seemed to tarnish the U.S. dollar's claim to be a safe haven.
(Additional reporting by Wayne Cole in Sydney and Masayuki
Kitano and Rika Otsuka in Tokyo; Editing by Michael Watson)
