The US dollar regained some of its strength against the yen yesterday as Japanese Prime Minister Keizo Obuchi arrived in Paris for the start of a three-country European tour aimed at retaining the yen's role as an international currency.
The dollar jumped to 112.88 yen, pulling itself off 27-month lows reached on Tuesday of 110.46 yen, and was trading substantially higher than its New York close on Tuesday of 111.36 yen.
Traders said short-covering following the failure of speculators to drive the dollar through the 110 barrier on Tuesday was responsible for the dollar's rise.
But they said it was already beginning to weaken from its highs in late trade, dropping to 111.68 as traders began to focus on Mr Obuchi's visit, and economists pointed to expectations of a 10 per cent deficit this year. With Japan's economy still submerged in recession, and the introduction of the euro seen as a potential alternative home for yen-based assets, Mr Obuchi is making it his top priority to secure an international role for the yen.
In a speech in Paris today, he is widely expected to call for greater stability between the big three currencies - the dollar, the euro and the yen - and may tentatively push for a system of target zones.
Analysts believe such a proposal at best is likely to receive a guarded reaction.
