The dollar traded near a five-year low against the yen yesterday as some traders declined to bet on an advance in the U.S. currency before a Treasury Department report today on foreign purchases of American assets in November.
Speculation that the U.S. economy won't attract enough foreign investment to compensate for the deficit in its current account has helped push the dollar down 5 percent against the euro and 6.7 percent against the yen in the past three months.
"The dollar will remain on the defensive over the next 24 hours," said Kamal Sharma, a currency strategist in London at Dresdner Kleinwort Wasserstein. "People's focus is still on the deficit issues, and they will be nervous before the number."
The yen traded at 102.12 per dollar at 5 p.m. in New York from 102.02 late Friday in New York, according to the electronic foreign-exchange trading system EBS. Earlier yesterday, it climbed to 101.69, the strongest since January 2000. Against the euro, the dollar traded at $1.3067 from $1.3112 late Friday.
Trading was slower than usual with U.S. financial markets closed for Martin Luther King Jr. Day, Sharma said. He predicted that the dollar will trade at 102 yen and $1.33 per euro at the end of this quarter.
Dresdner estimates that foreigners purchased $65 billion to $70 billion worth of U.S. assets in November, up from $48.1 billion in October. The U.S. trade shortfall, a measure of imports vs. exports, widened to a record $60.3 billion in November.
"If we do get a number below $60 billion, then I wouldn't be surprised to see the dollar weaken to $1.33," per euro, said Ian Stannard, a currency strategist in London at BNP Paribas SA.
BNP Paribas predicts that the dollar will weaken to 98 yen by the end of the first quarter.
The monthly Treasury Department report on foreign purchases of U.S. assets spurred an average 0.7 cent move in the dollar against the euro last year, and a 0.5 yen swing in the dollar against Japan's currency, according to Bloomberg data.
Japan's currency is up 1 percent since Otmar Issing, European Central Bank chief economist, said Jan. 11 that Asian countries should let their currencies rise because the euro's gains had "gone too far." The euro rose 7.6 percent against the dollar last year, reaching a record $1.3666 on Dec. 30. The yen gained 4.5 percent.