Dollar steady in Asia after central bank action

TOKYO (AFP) - The dollar was broadly steady in Asian trade Monday as recent concerted action by the world's major central banks helped to restore some calm to volatile financial markets, dealers said.

The Bank of Japan announced another cash injection of 600 billion yen (5.0 billion dollars) into the banking system as part of a global effort to avert liquidity shortages due to problems in the US mortgage sector.

The dollar was at 118.29 yen in Tokyo morning trade, down slightly from 118.37 in New York late Friday.

The euro was also stable at 1.3701 dollars from 1.3692 and at 162.08 yen from 162.10.

The Bank of Japan's injection of liquidity into the money market was the latest in a series of moves by top central banks to prevent a credit crunch.

The action has reassured jittery investors, helping Wall Street stage a late recovery on Friday and Japanese shares to rebound in early deals Monday.

"The fact that central banks cooperated to supply liquidity gave market players a sense of relief," said Hideaki Inoue, chief manager of currency trading at Mitsubishi UFJ Trust and Banking Corp.

Market participants expect central banks to continue to supply liquidity to reassure markets and help stock markets recover, Inoue said.

But further problems involving financial institutions and their exposure to the US subprime home loan market to risky borrowers could quickly undermine any rebound in equities, he added.

The recent turbulence on world markets has benefitted both the dollar and the yen amid a flight to safety and an unwinding of risky carry trades funded by selling the Japanese currency.

Media reports that the US Securities and Exchange Commission will start probing major Wall Street banks to determine their exposure to risky subprime loans are keeping investors on their toes, dealers said.

"We expect this week to involve some volatile trading," Inoue said.
Investors are nervous ahead of key US indicators this week including consumption, machinery orders, and housing data.

Dealers were also weighing news that Japan's economy grew by just 0.1 percent in the second quarter of 2007, less than analysts had expected.

The figures further dampened expectations of an interest rate rise by the Bank of Japan next week given the recent plunges on world stock markets, dealers said.