Dollar creeps up vs yen, sticks to tight range

TOKYO, Aug 26 (Reuters) - The dollar edged higher against the yen on Friday but was confined to tight ranges as many market players refrained from making big bets ahead of a series of potentially market-moving events in September.

The busy schedule includes a U.S. jobs report on Sept. 2, elections in Japan and Germany, and a visit by Chinese President Hu Jintao to Washington on Sept. 7, which comes less than two months after China's revaluation of the yuan.

Traders said speculators were sitting on the sidelines ahead of these events and the market was being driven by flows from longer-term investors.

Encouraged by signs of a stronger economy in Japan, foreigners have been heavy buyers of Japanese stocks, helping buoy the Nikkei share average to four-year highs.

But the yen has struggled to gain, as the foreign buying is being offset to a large extent by Japanese investors' appetite for high-yielding foreign currency denominated bonds, some said.

"As a result we're stuck at a bit of an impasse," said Mitsuru Sahara, vice president of forex dealing at UFJ Bank.

The dollar has risen around 8.4 percent against a basket of six major currencies this year as a steady campaign of interest rate rises by the Federal Reserve has increased the dollar's rate advantage over other currencies.

But the dollar index is now roughly unchanged from three weeks ago, after a period of listless trade with market activity thinned by the absence of many market players due to summer holidays in the Northern Hemisphere.

The dollar had edged up around 0.2 percent against the yen at 110.30 yen as of 0250 GMT. It was well above a seven-week low near 109.05 yen hit in mid-August and in the middle of the range of 109-111 in which it has drifted for the past two weeks.

Some traders said the yen had come under mild pressure after a report in the Financial Times daily cited a French anti-terrorism expert saying that Al Qaeda could be planning attacks on Asian financial centres including Tokyo.

The euro was barely changed against the dollar at $1.2300 but fared better against the Japanese currency, rising 0.2 percent to 135.60 yen.

OIL WORRIES

The euro was holding steady despite data on Thursday that showed Germany's Ifo business sentiment index unexpectedly dipped to 94.6 in August from 95.0 in July.

That followed a more upbeat survey from the ZEW economic research institute earlier in the week, which showed investor confidence in the euro zone's largest economy at a 17-month high.

Federal Reserve Chairman Alan Greenspan will appear on Friday at an economic symposium in Wyoming, where he is due to reflect on his 18-year stint at the helm of the U.S. central bank but is not expected to touch on the outlook for monetary policy.

Some traders, however, said they would be watching for any comments from the Fed chairman on the recent rise in oil prices to record highs, which they worry could hurt the U.S. economy and give the Fed cause to pause its rate-rising campaign.

"People want to buy dollars on the rising interest rate story, but the big rise in oil prices is starting to make them cautious," said Kosuke Hanao, head of forex sales at Royal Bank of Scotland in Tokyo.

For now the Federal Reserve appears more worried about the impact of rising oil prices on inflation than growth.

Chicago Fed President Michael Moskow said late on Wednesday that higher U.S. interest rates were needed to keep inflation contained as the labour market tightens and energy prices climb.

The market may get a better handle on the Fed's thinking next Tuesday when the central bank releases minutes of its policy meeting on Aug. 9.

The Fed raised rates by a quarter percentage point to 3.5 percent at that meeting in its 10th straight rate hike. Most analysts expect the Fed to raise rates to at least 4 percent by the end of the year, and some see rates heading as high as 5 percent in 2006. (Additional reporting by Satomi Noguchi) ($1=110.07 Yen)

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source: reuters

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