Dollar declines against the yen on Japanese capital spending data, Chinese stock drop

The dollar fell against the yen in Asia Monday, hurt by robust Japanese data as well as speculation that a drop in Chinese stock prices could prompt unwinding of so-called yen-carry trades.

The U.S. dollar was trading at 122.01 yen midafternoon Monday, down from 122.06 yen late Friday in New York. The euro rose to US$1.3452 from US$1.3443.

The dollar declined against the yen first on a report that showed Japanese capital investment rose 13.6 percent in the first quarter, the fifth straight quarter of double-digit growth.

The U.S. currency dropped further as the Shanghai Composite Index fell 4.6 percent by midday. The weak Chinese share prices raised speculation that some players may trim their exposure to risky positions by reversing yen-carry trades on worries of a possible plunge of global financial markets, said Satoshi Tate, a senior dealer at Mizuho Corporate Bank.

The carry trade involves borrowing yen at Japan's low interest rates and investing those funds in overseas assets with higher returns. Returning funds to Japan would lift the yen.

The day's movements, along with the U.S. currency's inability to clear 122.20 yen on Friday despite strong U.S. employment data, has left the impression that the dollar needs something more dramatic to resume climbing, traders said.

"Considering that the U.S. non-farm payrolls result Friday wasn't powerful enough, we need a strong trigger to send the dollar higher," said Tate.

Friday's data showed that U.S. non-farm payrolls increased 157,000 in May, exceeding an expected rise of 145,000. The dollar's rally, however, stalled at 122.14 yen during New York trade.

The dollar was mostly lower against other Asian currencies Monday, falling to 8,777 Indonesian rupiah from 8,827 and to 45.630 Philippine pesos from 46.145. It rose to 40.485 Indian rupee from 40.270.