* Dollar up on day vs yen but holds below 90 yen
* Japan's Fujii says won't rule out intervention
* Euro zone sentiment at 82.8 in Sept, beats forecasts
(Adds comment, details, updates prices)
By Naomi Tajitsu
LONDON, Sept 29 (Reuters) - The dollar edged up against the
yen on Tuesday, correcting steep gains made the previous day as
Japan's finance minister backtracked over its tolerance of a
stronger yen.
The U.S. currency clawed back from an eight-month low hit
against its Japanese counterpart on Monday, but gains were
limited as markets still saw room for the yen to rise.
Japanese Finance Minister Hirohisa Fujii on Tuesday said he
would not rule out taking action if currency moves were
irregular but that not promoting a weak currency was the correct
policy. []
He spoke after backtracking on Monday from remarks
suggesting he was comfortable with recent yen strength but
markets were generally unconvinced.
"(Fujii's) comments today added some apprehension in the
market about the dollar/yen's slide, but the trend in the pair
remains downward," said Jane Foley, currency research director
at Forex.com in London.
By 1130 GMT, the dollar was up 0.4 percent at 89.93 yen,
after briefly recovering above 90 yen.
The pair hovered around levels at which options are expected
to expire later in the day. Around $250 million in options with
a strike price of 90 yen will tick over at the New York cut, IFR
reported, as will $200 million each at 90.20 and 90.30.
Market players may still attempt to push the dollar toward
January's 13-year low of 87.10 yen and only then think seriously
about the possibility of intervention, analysts say, though many
say a drop through 85 yen would more likely be needed.
The dollar index, which tracks the performance of the
greenback versus a basket of six other major currencies, edged
up 0.1 percent to 77.152 <.DXY>.
The euro <EUR=> fell more than half a percent to a two-week
low around $1.4538 as short-term players unwound some
euro-buying/dollar-selling positions. The pair pulled further
away from a one-year high of $1.4845 hit last week on electronic
trading platform EBS.
EURO SLIDES
Traders brushed off data showing euro zone economic
sentiment improved slightly more than expected in September, to
82.8 from 80.8 in August versus forecasts of 82.2. []
The euro hit a session low against the yen of 130.71 yen
<EURJPY=R>, as it was pressured across the board in part due to
a near 1 percent tumble against sterling <EURGBP=D4>, which rose
broadly on the back of a surprising jump in UK sales figures.
European Central Bank President Jean-Claude Trichet said
late on Monday he backed the argument for a strong U.S. dollar
in foreign exchange markets. [] This sentiment was
repeated by ECB Governing Council member Ewald Nowotny.
"The dollar comments were stronger than previous commentary
and reflect concern regarding the impact of a stronger euro on
the euro zone economic recovery," said Geoffrey Yu, currency
analyst at UBS.
The comments came as the dollar has taken a beating in past
months, in part due to speculation that the U.S. currency's
reserve currency status will wane in the future, a theme that
analysts expect will sting the dollar in the long term.
Russia's central bank on Tuesday helped to keep that issue
on traders' minds when its first deputy chairman said it may
possibly add Canadian and Australian currencies to its reserves,
while saying it has no plans to cut the amount of U.S.
Treasuries it holds. []
"The statement shows this is an argument which is not going
to go away, we could be talking about this in five years' time,"
said Foley at Forex.com.
(Additional reporting by Tamawa Desai; Editing by Victoria
Main)
