TOKYO, Oct 17: The dollar rose against the yen on news the Bank of Japan (BoJ) may adopt a more radical monetary policy to beat inflation but gains were capped prior to a key speech by the US Federal Reserve chairman, dealers said.

The greenback was quoted at 121.60-63 yen up from 121.31 yen in New York and 121.17-20 yen in Tokyo late Tuesday.

BoJ executive director Minoru Masubuchi said Tuesday the central bank did not rule out the possibility of purchasing foreign government bonds to achieve an inflation target as a deflationary cycle grips the world’s number two economy.

Short-term traders had gone short on the dollar but they were stopped out (after the comments), said Sanwa Bank foreign exchange vice president Mitsuru Sahara. “(The words were) a bit surprising and caused short-covering. That sentiment is going on.

But the dollar is near the top of its range as investors await a speech by Fed chairman Alan Greenspan in the United States later in the day, with the Fed expected to continue to cut interest rates already at a 39-year low in the wake of last month’s terror attacks, dealers said.

At 122-yen levels there are relatively good offers from Japanese exporters so I think the dollar is in a 120-122 yen range. The short-covering has been executed, Sahara said.

The strength of the US stock market despite weak economic fundamentals is giving resilience to the dollar against the euro and the yen, DBS Bank said in Singapore.

US fundamentals are looking really bad but the market basically ignored them and the dollar continued to stay resilient against the euro and the yen, it said.

The euro slipped against the greenback as fears of anthrax spread worldwide outweighing concerns over discovery of the deadly bacteria in the US, dealers said.

The euro bought $0.9046-49 down from $0.9087 in New York and $0.9060-63 in Tokyo late Tuesday.

With the anthrax problem (and the rumours throughout Europe) the euro was sold heavily against the dollar, said Commertzbank foreign exchange manager Ryohei Muramatsu.

Anthrax started in the US but has already been discounted. Now (rumours) have started (in Europe) which have not been discounted, he said. Market behaviour fell on the rumours.

While no anthrax cases have been confirmed beyond the US, envelopes containing mysterious white powder have been found throughout the world, feeding fears terrorists would respond to the US attacks on Afghanistan with a bioterror offensive.

Fresh reports of deliveries of suspicious-looking letters to the US consulate general in western Japan and news organisations here had no strong impact on the market.

Meanwhile against the yen, the euro was quoted down from 110.23 in New York but still up from 109.83 yen in Tokyo late Tuesday.

In late Singapore trade, the US dollar strengthened to 44.740 Thai baht from 44.595 the previous day, 10,008 Indonesian rupiah from 10,000, 1.8183 Singapore dollars from 1.8117 and 1,301.85 South Korean won from 1,300.90.

The greenback weakened to 51.725 Philippine pesos from 51.7275 and 34.5460 Taiwan dollars from 34.5565.—AFP