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Yen retreats after strong gains

TOKYO, Sept 29 – The yen gave back some of its recent strong gains in Asian trade on Tuesday after Tokyo fired a warning shot to traders over the currency\’s surge.

The dollar rose to 90.01 yen in Tokyo afternoon trade from 89.58 in New York late Monday, when it had earlier sunk to an eight-month low of 88.25.

The greenback rebounded after Japan\’s Finance Minister Hirohisa Fujii said the yen\’s recent rise was "a bit too rapid" and Tokyo did not rule out stepping into the market to sell the currency "in an abnormal situation."

Although intervention by the Japanese authorities still appears unlikely, traders used Fujii\’s remarks as a cue to take some profits, said Yuji Saito, head of forex at Societe Generale in Tokyo.

Fujii has said on several occasions since taking his post earlier this month that in principle he opposes action to curb the strength of the yen, which hurts Japanese exporters\’ earnings.

On Monday he said the dollar\’s recent downtrend was "not abnormal" and it would be a "mistake" to artificially weaken the yen to defend exporters. But he later said his remarks had been misinterpreted as support for a strong yen.

Japan has not intervened in the foreign exchange market since March 2004, allowing the yen to find its own level against the dollar.

Fujii "appears to be back-pedalling on some of his recent comments about not intervening in the forex market and allowing the yen to appreciate," Barclays Capital analysts wrote in a note to clients.

"The realities of governing may be starting to set in," they added. "In our view, a strong yen is not good for the Japanese economy, which has structural problems with deflation and an overdependence on exports."

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A record 2.4 percent fall in Japan\’s core consumer prices in August from a year earlier raised expectations that interest rates in Asia\’s biggest economy will remain low for some time, reducing the appeal of yen-denominated assets.

The dollar is also being weighed down by expectations that US interest rates will remain at rock-bottom levels for a while, said Saito.

But traders are likely to refrain from selling the dollar aggressively this week due to caution ahead of a key survey of Japanese business confidence due on Thursday, as well as Friday\’s pivotal US jobs data, he added.

The euro gained to 1.4626 dollars from 1.4612 and to 131.62 yen from 130.93.

European central bank chief Jean-Claude Trichet\’s support for a strong greenback counterbalanced a boost to the euro from German Chancellor Angela Merkel\’s weekend election victory, which lifted European stocks, dealers said.

"The key is whether the euro can breach above the psychologically important 1.5-dollar mark," Toru Tanaka, a senior treasurer at Mitsubishi Corp., told Dow Jones Newswires.

"If it does, the dollar will face another round of severe downturn against its major rivals, including the yen."

Against Asian currencies, the dollar fell to 1,186.00 South Korean won from 1,195.35 on Monday, to 1.4178 Singapore dollars from 1.4202 and to 32.37 Taiwan dollars from 32.46.

It dropped to 9,715 Indonesian rupiah from 9,725 and to 33.59 Thai baht from 33.62, while rising to 47.56 Philippine pesos from 47.52.

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