The dollar/yen hit the day's high of 84.58 yen after Ozawa
called for measures including intervention to cope with the yen's
rise, exactly at a time when market players are focusing on
whether Japan will intervene to stem the yen's appreciation.
Ozawa, now in a showdown with Kan in the Sept. 14 vote for
ruling party leader and hence prime minister, has a strong
political base within the ruling Democratic Party that could
threaten Kan's survival, even though opinion polls have shown
nearly 70 percent of the public want Kan to win. At present the
race is too close to call. [ID:nTOE68000C]
As Ozawa also favours big spending to boost the economy, his
victory would be expected to lift Japanese shares and hurt
government bonds, at least in the short term, which in turn would
be likely to help the dollar against the yen.
Kan said last week he will take firm measures on currencies
when needed.
A modest rise in China's official purchasing managers' index
in August lent support to the high-yielding Australian dollar,
which rose 0.7 percent on the day to $0.8990 <AUD=D4>.
EYES ON JAPAN'S STANCE
The yen has shrugged off this week's monetary easing by the
Bank of Japan and is still hovering near a 15-year peak against
the dollar of 83.58 yen hit on trading platform EBS last week.
Many traders and analysts believe the dollar's drop against
the yen would have to turn much more volatile or deeper for
Japanese authorities to take action.
A sharp drop in dollar/yen, such as 1 to 2 percent or more in
a single day towards the 80 yen level and below, is seen as the
most likely scenario that would prompt Japan to stick its neck
out and buy dollars. [ID:nTOE67U07V]
But others say yen-selling intervention by Japanese
authorities may occur sooner.
"Share prices have entered a danger zone, so it would not be
a surprise to see it happen at any time," said a trader for a
European bank.
If intervention does occur and lifts the dollar against the
yen, a lot of dollar sellers are likely to emerge, he said.
"There are many people who have not been able to sell as much
as they want, so I think there will be selling if there is a
(dollar) rebound," the trader said.
The euro rose 0.5 percent against the yen to 107.25 yen
<EURJPY=R>, pulling away from a nine-year low of 105.44 yen hit
on trading platform EBS last week.
The Bank of Japan decided on Monday to expand its fixed-rate
fund supply scheme to 30 trillion yen from 20 trillion yen, and
to launch a new six-month loan operation.
The euro edged up 0.2 percent against the dollar to $1.2710
<EUR=>.
(Editing by Michael Watson)