Tokyo, July 6: With question marks hanging over Japan's economic recovery and an interest rate rise on the horizon, currency markets want a clue to the direction of the yen. So desperate are they for clear hints as the yen has dipped to one-month lows that this weekend's meeting of finance ministers of the Group of Seven (G7) rich nations in Japan's southern city of Fukuoka has become a focus - even though it will produce no policy statement."Why would they want to rock the boat?" Deutsche Bank senior currency strategist, Ken Landon said.
Even so traders will be reading the tea leaves and listening to ministers' news conferences in hopes of hints.
Investors are looking to the G7 meeting for a pretext to sell more yen as sentiment has turned bearish in the short-term, said Mitsumaru Kumagai, senior analyst at IBJ securities.
The yen has shed about three percent against the dollar from two months highs it scaled around 103.90 on June 23, when speculation was particularly rife that the Bank of Japan would end its zero-rate policy at its meeting on July 17. However, the contradictory signals from the BoJ's "tankan" corporate sentiment survey this week, coupled with a batch of comments from Japanese and US officials unhappy at the idea of a rate rise have dented such hopes, pushing the yen lower.
A spreading domestic bribery scandal and vocal criticism of a Japanese Government deal to use taxpayers' money to bail out an ailing department store operator have also hurt sentiment. While Japanese officials have said the G7 ministers will not discuss currency and monetary policy on Saturday, Washington has signalled it would press Tokyo not to change its accommodative policy.
"As we have said in many occasions, the achievement of sustained domestic-led growth is an absolute crucial priority for Japan," US treasury secretary Lawrence Summers said on Wednesday.
Washington has long worried that Japan and Europe need to do more to keep the world economy strong and stable as the US economy appears headed for a soft landing after more than nine years of uninterrupted growth.
But the BoJ has become increasingly impatient with more than 16 months of what was introduced as an "emergency" policy of pushing short-term interest rates virtually to zero.
"We're closely watching whether there will be any discussions about the BoJ's zero rate policy outside the official meetings," Industrial Bank of Japan manager, Yutaka Kawazoe said.
However, many analysts see the rate rise as a done deal as far as the Bank of Japan is concerned, with little reaction expected from the market when it actually comes.
-- (Reuters)
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