LONDON (Reuters) - The yen briefly rose to a five-year high against the dollar Monday as investors bet next month's meeting of Group of Seven industrialized nations would urge Asian countries to let their currencies rise.
So far, the dollar's three-year decline has translated mostly into strength in the euro, causing concern in Europe about exporters' competitiveness and leading European central bankers last week to make fresh calls for Asia to shoulder more of the burden.
"It makes sense to stay short on dollar/yen and dollar/Asia generally going into that meeting just because it's very clear policy makers may now be coming round to the view that the next major foreign exchange realignment has to be from Asia," said Shahab Jalinoos, ABN AMRO, senior currency strategist, London.
The dollar held within recent ranges against the euro, some five cents above December's record low, as markets awaited Tuesday's release of closely-watched U.S. capital flows data.
The dollar fell to ¥101.70 in early European trade, its lowest since January 2000, before recovering to ¥102.06 yen by 10:00 a.m. ET.
Against the euro, the dollar was steady at $1.3090.
The euro has gained about 50 percent against the dollar since early 2002. In the same period, the yen has gained only about half of that. The closure of U.S. markets for Martin Luther King Day meant trade was subdued and dealers were reluctant to take big positions ahead of Tuesday's U.S. flows data and inflation numbers later in the week.
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Finance ministers from the G7 rich countries' club will hold their first regular meeting of 2005 in London in the first week of February. And investors will be keen to hear any views about currency policy.
Some traders expect the G7 communiqué next month to put specific pressure on China, which pegs its yuan to the dollar, to allow its currency to rise.
Any revaluation of the Chinese currency would buoy other Asian currencies given the strong economic ties in the region.
"People want to buy Asia ahead of the G7 in case China does anything or there is a change of language," said Ian Gunner, head of foreign exchange research at Mellon Bank in London. "And if you want to buy Asia the yen is a liquid vehicle."
ECB's chief economist Otmar Issing is due to speak on Wednesday and analysts said his comments would be watched closely as would those of a series of Federal Reserve officials including Gary Stern, Ben Bernanke and Janet Yellen who are due to speak to the press this week.
Capital flow figures due on Tuesday could put worries about the current account deficit back in the spotlight.
Much of the dollar's decline had been driven by worries that the U.S. will struggle to finance its growing external deficit with capital from overseas. The trade deficit hit a record $60.3 billion in November.
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