Tuesday July 11, 2006 - 11:43:35 GMT
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Reuters - www.reuters.com
CORRECTED - FOREX-Yen steadies before BOJ, dollar consolidates
Updates prices, adds comment, changes byline)
Corrects Shea quote in paragraph 4 substituting "short" for "long".
By Katie Hunt
LONDON, July 11 (Reuters) - The yen steadied off the previous day's one-month high versus the dollar on Tuesday ahead of the Bank of Japan's expected interest rate hike this week, while the dollar consolidated ahead of key U.S. data this week. In a session with no major economic data, currencies were trading listlessly with the focus on Friday's BOJ policy decision where investors expect the country's first rate hike in six years and an end to its zero rate policy.
"I'd say that 25 basis points is now in the price but the removal of policy accommodation will support the yen going forward," said Ryan Shea, senior currency strategist at State Street Global Markets.
"If you look at our flow data, you can see that real money players are still short on the yen. The carry trade would be in jeopardy," he added.
In carry trades, investors borrow a currency with low interest rates such as yen to buy a higher yielding one.
By 1015 GMT the dollar was steady at 114.40 yen having hit a one-month low of 113.31 yen on Monday.
The euro was little changed from the U.S. close at $1.2739 and slightly higher on the yen at 145.75 yen
"The market is drifting. I don't think we saw any dramatic moves and the calendar is light," said Daragh Maher, currency strategist at Calyon.
U.S. DATA DUE
Investors are looking to U.S. trade data for May on Wednesday and June retail sales figures on Friday for clues on the interest rate outlook.
Weaker-than-expected U.S. jobs data last week cut back expectations for a U.S. interest rate hike in August, while investors widely expect the European Central Bank to raise interest rates next month.
For Tuesday, European Union finance ministers meet in Brussels and ECB President Jean-Claude Trichet holds a briefing at 1330 GMT, although not on monetary policy.
Many analysts believe the BOJ is set to lift rates despite the government's objections, much as it did when scrapping the previous quantitative easing policy in March.
Japanese Finance Minister Sadakazu Tanigaki repeated on Tuesday that zero rates are desirable.
"Everyone is already immune to these statements. It's just a non-factor," said Noriyuki Kato, treasury manager at State Street Global Markets in Tokyo.
Analysts say the yen also drew support on speculation China might take more action to let the yuan rise as the anniversary of last year's revaluation approaches.
Beijing revalued the yuan by 2.1 percent last July 21 and freed it from a dollar peg. The Chinese currency has strengthened only 1.5 percent since then.
Elsewhere, the Canadian dollar slipped against the U.S. currency ahead of a Bank of Canada interest rate decision.
Many investors expect the BOC to leave interest rates unchanged at 4.25 percent although some are predicting a 25 basis point hike.
Â© Reuters 2006. All Rights Reserved.
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