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Dollar slips to upper 103 yen on concern about U.S. economic outlook.

TOKYO, May 19 Kyodo

The U.S. dollar moved narrowly in the lower 104 yen level Monday in Tokyo before falling into the upper 103 yen zone late in the afternoon with the entrance of European market players, as investors remained concerned about the faltering U.S. economy.

At 5 p.m., the dollar was quoted at 103.88-90 yen, compared with Friday's 5 p.m. quotes of 104.03-13 yen in New York and 104.23-26 yen in Tokyo.

It moved between 103.84 yen and 104.30 yen during the day, changing hands most frequently at 104.10 yen.

The euro was quoted at $1.5596-5598 and 162.02-06 yen against

$1.5573-5583 and 162.09-19 yen in New York, and $1.5493-5496 and 161.52-56 yen in Tokyo late Friday.

Fears of further financial turmoil subsided, but the dollar's rise remained limited for most of the Tokyo deals as investors remained nervous about the health of the U.S. economy, dealers said.

''Investors have come to believe that the fundamentals of the U.S. economy will temporarily improve in mid-year due to the government's economic stimulus package including tax rebates for individuals, which began in late April,'' said Koji Fukaya, senior currency strategist at Deutsche Securities Inc.

''But whether such momentum will carry on till year-end or will fade has become the focal point, keeping investors from actively buying the U.S. currency,'' he said.

Dealers added that the lackluster performance of global stock markets including Tokyo also kept the dollar from testing higher ground.

Investors often hesitate from actively buying the dollar and other high yielding currencies against the yen when stocks sag.

However, a growing view that the U.S. Federal Reserve may have cited inflationary risks as a key concern at its latest monetary policy setting meeting underpinned the dollar, said Yasutoshi Nagai, chief economist of the fixed income, currency and commodities department at Daiwa Securities SMBC Co.

Nagai said that recent comments by Fed officials, including Federal Reserve Bank of San Francisco President Janet Yellen, have strengthened such a view.

On Tuesday, Yellen reportedly warned about the heightened risks of inflation and suggested that the Fed will need to tighten its monetary policy in a timely fashion as growth picks up later this year.

Dealers said that market participants will be paying close attention to economic readings due out in upcoming weeks, including production, housing-related and consumer confidence data, for hints about the U.S. economic outlook.
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Publication:Japan Weekly Monitor
Date:May 19, 2008
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