FOREX-Yen dips, rally pauses on intervention jitters

* Yen pulls back from 15-yr high vs dlr, 9-yr peak vs euro

* Market wary of possible Japan action on yen

* Euro trims Ifo gains, Irish/Bund yield spreads widen

(Adds detail, updates prices)

By Naomi Tajitsu

LONDON, Aug 25 (BestGrowthStock) – The yen pulled back from 15-year
highs against the dollar and a nine-year peak versus the euro on
Wednesday on speculation Japanese authorities may take action to
stem the currency’s rise.

The euro erased gains made on strong German economic data as
a widening in peripheral euro zone bond yield spreads
highlighted concerns about weak countries in the bloc, following
a downgrade of Ireland’s credit rating the previous day.

Investors were cautious about extending the yen’s gains
after Japanese Finance Minister Yoshihiko Noda repeated he would
respond to yen moves when necessary. His comments followed a
Nikkei newspaper report that the finance ministry may consider
unilateral yen-selling intervention. [ID:nN24264334]

Analysts said the report and Noda’s comments offered a
chance for investors to pause the yen’s latest rally, which saw
the dollar post its worst day versus the yen since May on
Tuesday, while the euro broke under a key resistance level.

“The yen has come quite far quite quickly … so we’re
seeing some consolidation,” said Daragh Maher, currency
strategist at Credit Agricole CIB.

He added that news Bank of Japan Governor Masaaki Shirakawa
will attend a Federal Reserve conference in Jackson Hole in the
United States later this week was making some traders wary of
extending the yen’s rally for the moment. [ID:nTKV006403]

Some analysts said Shirakawa’s travel plans had increased
speculation that Japanese authorities may be preparing to act on
the yen. At the same time, others argue the central bank is
unlikely hold an emergency policy meeting in his absence.

At 1120 GMT, the dollar (JPY=: ) was up around 0.5 percent on
the day to 84.55 yen, within reach of a 15-year low hit on
Tuesday around 83.60. The all-time low for dollar/yen is around
79.75 yen, hit in April 1995.

Traders said there was higher demand for short-term
dollar/yen options with a 85.00 yen strike price as intervention
jitters increased, adding this was supporting the U.S. currency.

EURO RELIQUISHES GAINS

The euro (EURJPY=R: ) traded 0.6 percent higher at 106.89 yen,
recovering from a nine-year low of 105.44 hit on trading
platform EBS on Tuesday. The single currency pulled back from
the day’s high of 107.64 yen.

Analysts said the euro had bumped lower on concerns about
fiscally weak euro zone countries, reflected in a wider yield
spread between 10-year Irish and German bonds (IE10YT=TWEB: )
(DE10YT=TWEB: ), which expanded to its widest since May.

Standard & Poor’s on Tuesday downgraded Ireland one notch to
AA- with a negative outlook, fanning worries about euro zone
sovereign debt and the banking system. [ID:nN24275188].

The euro (EUR=: ) was flat on the day at $1.2626.

The widening spreads pushed the euro off the day’s high
around $1.2725 hit after the German Ifo [ID:nBEB004473] survey
came in above forecasts. Traders said Middle East and Swiss
selling demand also capped the rally.

Risk aversion supported the Swiss franc and drove the
euro (EURCHF=R: ) to a lifetime low of 1.2973 francs on EBS.

Traders were closely watching Tokyo’s Nikkei share index
(.N225: ), which fell more than 2 percent to a 16-month low,
calculating that the steeper its losses the more likely Japanese
authorities might finally bite the bullet and intervene.

Still, some saw intervention as unlikely at current levels.

“It’s unlikely there would be intervention much above 80
yen,” said Ray Farris, chief currency strategist at Credit
Suisse in London. “Price action is not disorderly and the yen is
not overvalued by our estimates.”

(Additional reporting by Neal Armstrong; editing by Nigel
Stephenson)

FOREX-Yen dips, rally pauses on intervention jitters