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Wednesday September 15, 2010 - 20:39:14 GMT
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FOREX NEWS - Dollar surges after Japan intervenes to weaken yen

4:20pm EDT

* Japan intervenes for first time in six years

* Dollar rises to 85.77 yen, runs into strong offers

* Key resistance above 86 yen still untested

(Updates throughout, adds comment, detail)

By Nick Olivari and Steven C Johnson

NEW YORK, Sept 15 (Reuters) - Japan intervened in global currency markets on Wednesday, pushing the yen down 3 percent against the dollar, though investors remained cautious on whether the action would impact the currency longer term.

Dealers said the Bank of Japan spent $20 billion or more to weaken the currency against the dollar, which staged its biggest daily gain against the yen in nearly two years.

By late afternoon in New York, the dollar had climbed as high as 85.78 yen on electronic trading platform EBS JPY=EBS, and 85.77 on Reuters JPY= up from a 15-year low beneath 83 yen. It last traded at 85.61 yen.

The dollar looked poised to break resistance on the 50-day exponential and simple moving averages, if not on Wednesday then in coming days.

That said, analysts remain unconvinced the Bank of Japan will be able to successfully fend off the rising yen.

"It probably takes a lot more money than any central bank is willing to print to defy the larger economic forces at work," said Dan Cook, senior market analyst at IG Markets in Chicago.

A 15-month Japanese intervention campaign that ended in 2004 cost about 35 trillion yen and achieved mixed results.

This time round, Japan faces a weak U.S. and global economic outlook that makes the yen an attractive safe-haven.

Preventing yen strength could prove difficult if the Federal Reserve decides to pump more money into the U.S. economy to prevent a faltering recovery from stalling.

The euro, sterling and Australian dollar also soared against the yen as a result of the Japanese intervention, which the Ministry of Finance said was carried out without any foreign assistance.

The timing caught most investors off guard, coming after Prime Minister Naoto Kan won a party leadership election over a challenger who was a more strident advocate of intervention.

It also came when most speculators were heavily positioned in favor of the yen, forcing them to buy back the dollar aggressively and accelerating greenback gains.

Among the winners on Wednesday were Japanese exporters who were able to exchange dollar earnings above 85 yen.

David Kupersmith, head trader at Third Wave Global Investors, a global macro hedge fund in Greenwich, Connecticut. said they recently positioned the fund's discretionary portfolio for intervention, partly on the belief yen strength had gone too far.

"We had no opinion on timing but the election made it more likely with the resolution of the political situation in the short term," he said.

While they had taken "heat on yen positions" until the Bank of Japan move, the intervention had been very good for that segment of the fund. They were now debating the longer term prospects for the yen, Kupersmith said.

Greg Salvaggio, vice president for trading at Tempus Consulting in Washington said they went short the yen on Tuesday right below 83 yen.

"There's been no pull back and if the yen weakens to around 87, our view is that it would be beneficial for the Japanese authorities to do it again to try to push it above 90," Salvaggio said.

Some analysts said China was likely to welcome Japan's moves as it would dampen U.S. pressure on Beijing to allow its own currency to rise against the dollar.

LINE IN THE SAND AT 85?

The euro rose 3.2 percent to 111.38 yen EURJPY=, on track for its best day since February 2009, while the Australian dollar AUDJPY=R rose 3 percent and sterling 3.1 percent GBPJPY=R.

The euro rose 0.1 percent against the dollar to $1.3011 EUR=.

A softer yen makes Japanese exports cheaper and boosts company profits, relieving pressure on a fragile economy. Nomura currency strategist Jens Nordvig said Japan will try to keep the dollar above 85 yen and it could get as high as 87 yen in the days ahead. But he said a weak U.S. outlook would eventually push it back below 83 yen by year-end.

December dollar/yen futures were last at 85.52 yen JYZ0.

New York traders said a weaker dollar-yen trend would remain intact until the dollar tests 86.70, the 38.2 percent retracement of its June-to-September decline.

The Bank of Japan started buying the dollar around 0130 GMT on Wednesday and was active at least into the New York morning, with $2-3 billion spent in early New York hours, traders said. [ID:nTOE68E02W]

Sources familiar with the matter said the BOJ was ready to leave the intervention unsterilized rather than drain the funds that went into the currency market. [ID:nTKX006996] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For dollar/yen correlations: link.reuters.com/wyn43p

For PDF on the yen's rise r.reuters.com/zuz33p

For graphic on intervention link.reuters.com/qep63p

For Reuters Insider on yen link.reuters.com/sav63p

and link.reuters.com/peb53p

For Breakingviews on BOJ intervention [ID:nLDE68E0JD]

Billionaire George Soros on Reuters Insider [ID:nWEN9786]. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

(Additional reporting by Wanfeng Zhou, Gertrude Chavez-Dreyfuss and Vivianne Rodrigues in New York; ) (Reporting by Nick Olivari and Steven C Johnson; Editing by Andrew Hay)

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