Dollar gaining strength as yen weakens

The dollar was solid above 105 yen in Tokyo trading on Monday, the final market day of 2013, aided by Tokyo stock price gains and speculation of wider interest rate differentials between Japan and the United States.

At 5 p.m. trading closing, the dollar stood at ¥105.36-40, up from ¥104.68-70 at the same time Friday. The euro was at 1.3757-3758 dollars, down from 1.3763-3765, and at ¥144.96-98, up from ¥144.06-10.  , The dollar briefly rose to ¥105.41, topping the highest level in some five years and two months marked on Friday, thanks to buying by Japanese importers and rises in Tokyo stock prices.

In early trading, the dollar carried over its solid tone from overseas trading late last week, when the greenback attracted purchases after a rise in U.S. interest rates. Market sources say the key 10-year U.S. Treasury yield rose above 3% for the first time in about four months on the back of expectations for continued U.S. economic recovery.

An official at a foreign exchange broker explained that before a string of year-end and New Year holidays through Sunday, “some Japanese importers made early moves to procure funds in anticipation of continued strength of the dollar against the yen early next year.” At the same time, an official at a major Japanese bank said that  “Backed by the firmness of Japanese and overseas stock prices and the uptrend of U.S. interest rates, the dollar can easily chase higher ground.”

The dollar failed to extend gains. “At its upside, the dollar was hit by selling from Japanese investors to close positions before the long holidays,” an official at another foreign exchange broker said.  Still, another Japanese bank official declared  “the dollar maintained its solid undertone,” as Tokyo stocks stayed in positive territory.  Looking ahead, an official at a bank-affiliated brokerage house said that as the monetary policy stances of the Japanese and U.S. central banks have become clear, the yen’s weak trend is expected to continue next year.

A foreign brokerage house official says fund shifts to U.S. assets are likely to continue as long as the U.S. stock market remains on a strong note.