Yen wobbles after drop in business confidence

The dollar was slightly higher against the yen in Asian trade on Tuesday after a sharp fall in Japanese business confidence and continued efforts by Washington to talk up the greenback, dealers said.

The dollar was at 106.35 yen in Tokyo morning trade, compared with 106.13 in New York late on Monday.

The euro slipped to 1.5733 dollars from 1.5745 but edged up to 167.24 yen from 167.15.

Japanese business confidence slumped to the lowest level in almost five years in June, the central bank said in its closely watched Tankan survey, but the figure was slightly better than the market had expected.

The dollar gained support after China asked the US to try to steady the greenback amid a cooling global economy, said Saburo Matsumoto, chief forex strategist at Sumitomo Trust Bank.

Premier Wen Jiabao asked Washington to take steps to stabilise the dollar and prevent a further slowdown of the global economy in talks with visiting US Secretary of State Condoleezza Rice on Monday, Chinese state media reported.

US Treasury Secretary Henry Paulson meanwhile reiterated his support for a strong dollar, which he said was "a good thing" for the US economy.

"Every economy is going to have some ups and downs. We are going through a tough period in the US right now," he told Russian radio on Monday.

Markets were looking ahead to the release later in the day of the latest snapshot of the US manufacturing sector from the Institute for Supply Management, ahead of key US jobs data for June due on Thursday.

"We expect the US will jawbone against a much weaker dollar if a sliding stock market and weaker news on the economy continues to trigger unwinding of rate hike expectations," NAB Capital strategists wrote in a note to clients.

"For the Fed (US Federal Reserve) to change its tune on the dollar after suggesting it didn't want to see any further decline less than a month ago would be a significant blow to its credibility," they added.

Markets were waiting for a European Central Bank (ECB) meeting on Thursday when interest rates are expected to rise by 25 basis points to 4.25 percent to try to curb inflation that hit 4.0 percent in the eurozone in June.

But analysts said European officials may also start to be more attentive to slowing growth in the eurozone economies.

"The outlook for European growth remains uncertain and there are areas that are already experiencing economic slowdowns," said Sumitomo's Matsumoto.

Dollar gains on yen after Bernanke remarks

The dollar extended its gains against the yen in Asian trade on Wednesday after Federal Reserve chairman Ben Bernanke said a weaker greenback was adding to US inflation pressures, dealers said.

They said the market had taken the remarks as a signal that the US central bank will not be in a hurry to cut interest rates again as such a move would be likely to weigh on the dollar.

The dollar firmed to 105.24 yen in Tokyo morning trade from 105.08 in New York late on Tuesday. The euro was little changed at 1.5442 dollars but edged up to 162.45 yen from 162.36.

Bernanke told a conference in Barcelona, Spain that downward pressures on the dollar "have contributed to the unwelcome rise in import prices and consumer price inflation."

He said the Fed was "attentive to the implications of changes in the value of the dollar for inflation and inflation expectations."

Yosuke Hosokawa, chief forex strategist at Chuo Mitsui Trust Bank, said it was unclear how long support from the comments would last because his remarks were fairly general.

"The US is not the only country that does not wish for a weak currency because it imports inflation," he added. A stronger currency puts pressure on the prices of imported goods.

The Fed next meets on June 24-25 when it is expected to keep rates on hold, having slashed borrowing costs to 2.00 percent from 5.25 percent in late 2007.

Bernanke's remarks make another interest rate cut by the Fed unlikely "unless the economy falls over a cliff, which isn't the Fed's forecast," NAB

Capital strategists wrote in a note to clients.

The European Central Bank and the Bank of England meet on Thursday when they are also expected to leave interest rates unchanged.

Traders were also waiting for the release later Wednesday of a private sector payrolls report for May, followed by the closely watched official monthly labour market report due on Friday.

Yen supported in Asia by financial sector jitters

The yen was well supported in Asian trade on Tuesday as fresh worries about the health of the US financial sector made investors more risk averse, dealers said.

The dollar was at 104.50 yen in Tokyo morning trade, against 104.52 in New York late Monday, when the greenback had fallen against the Japanese currency.

The euro slipped to 1.5530 dollars from 1.5540 and to 162.29 yen from 162.41.

The yen was propped up as investors tend to buy back the Japanese currency to unwind risky positions in times of uncertainty, dealers said.

"The dollar overall remains weak following losses on Wall Street and market players shunned risk as worries over the credit crisis resurfaced," said Kenichi Yumoto, vice president of forex trading at Societe Generale.

"Fears over the financial sector have become the hot topic again after being put on the backburner in recent weeks," he added.

The strength of the yen also sent the euro lower against other major currencies, he said.

US shares skidded lower Monday after management shakeups at US banking giants Wachovia and Washington Mutual.

The ratings agency Standard & Poor's meanwhile warned that banks could face further losses on US residential mortgage-backed investments.

Traders are now looking ahead to upcoming US economic data, including a key monthly jobs report due on Friday.

Interest rate decisions are also due on Thursday from the eurozone and British central banks although both are expected to leave monetary policy unchanged for now due to worries about inflation.

"Investors don't know which to focus more on -- the renewed worries over the financial system or the interest rate outlook," said Yumoto.

On Monday the US Institute of Supply Management reported that its index of manufacturing conditions edged up to 49.6 in May from 48.6 in April, beating analysts' forecasts for a lower reading of 48.5.