Yen near 2-month low vs dlr, US trade figures eyed

The held near a two-month low against the dollar on Tuesday, dented by waning expectations for a slightly faster pace of Japanese monetary tightening, while the euro steadied ahead of U.S. trade figures.

Japanese consumer confidence worsened in August, with the Cabinet Office survey coming in at 47.6, down from 48.6 in July. Only a reading above 50 reflects optimism. The yen also failed to take heart from data showing wholesale price rises matched 25-year highs as consumer price rises stayed subdued.

A continued run of weak Japanese economic data -- on Monday machinery orders posted their biggest monthly drop in July --- has cemented expectations the Bank of Japan will raise interest rates only slowly from the current 0.25 percent.

By contrast, the dollar and euro have received support from views that interest rates could rise further, particularly in the euro zone.

As a result, Japanese investors were expected to carry on selling the low-yielding yen to fund purchases of foreign currencies and bonds, though analysts say some gains are possible before this week's Group of Seven meeting where yen weakness could be a topic for discussion.

The Kyodo news agency reported that a draft statement to be released from the G7 meeting did not yet contain a reference to currencies, which is still being negotiated.

"The yen is under pressure generally because of the weak data that we've seen in recent weeks and maybe a paring back of expectations that G7 would actually make any specific reference to currencies," Bank of America currency strategist Kamal Sharma said.

By 1143 GMT, the yen was broadly flat against the dollar at 117.60 , near the two-month low of 117.77 yen hit on Monday, according to Reuters data.

Against the euro, the yen stayed flat at 149.47 , within reach of the record low beyond 150 yen hit on Aug. 31.

The euro was 0.1 percent firmer against the dollar at $1.2715 after a pullback on Monday from the recent six-week low around $1.2646.

TRADE FIGURES

While the interest rate outlook remains a main trading theme, market players are also focusing on U.S. July trade figures -- due at 1230 GMT -- against a backdrop of talk about addressing global imbalances at the G7 gathering.

The deficit is expected to widen to $65.50 billion from $64.80 billion in June, a Reuters poll of 92 economists showed, its widest in six months due to higher oil prices.

It would be the third-highest monthly deficit on record and the largest since a $66.2 billion deficit in January. Analysts say a renewed focus on the U.S. trade deficit could dent the dollar further against the euro and yen.

"The key thing on the trade number is that the market has pretty much ignored it for the last little while, so with the Fed now paused (on rates) the question is whether or not the market starts to refocus on structural concerns," Westpac currency strategist Geoff Kendrick said.

The euro was also continuing to gain from a growing conviction the European Central Bank's October meeting will yield a rate increase from the current 3 percent.

This was reinforced by data on Tuesday showing German August wholesale prices rose by 5.3 percent year-on-year, well above the forecast 4.7 percent.

ECB Governing Council member Nicholas Garganas said he was "very worried" about stubbornly high inflation in the euro zone, telling news agency Bloomberg he would not be surprised to see it coming in at the upper part of forecasted ranges.

Fellow council member Vitor Constancio said interest rate rises have not yet hampered growth in the euro zone.

The International Monetary Fund said on Tuesday the dollar was expected to remain relatively stable versus major trading partners but a disorderly unwinding of global economic imbalances could send it much lower.