than-expected capital expenditure report from Japan. Assurances from Bank of Japan Gov. Toshihiko Fukui that Japan's central bank has no plans to diversify its foreign currency reserves away from the dollar also helped the greenback. Japan is the world's No. 1 holder of foreign reserves in dollars. Any move by Japan to shift such holdings to other currencies would likely make the dollar plunge. Meanwhile, a senior Japanese Finance Ministry official said Tuesday that Japanese authorities will have to take action if currency rates move abruptly, but the current stable market situation does not warrant such steps. "While the yen is still overvalued against other major currencies, the currency market situation recently seems to be corresponding to economic indicators more than in the past," Vice Finance Minister for International Affairs Hiroshi Watanabe told reporters at a luncheon hosted by the Foreign Correspondents' Club of Japan. That is a "natural way" for currency rates to move, and matches an agreement among Group of Seven leading industrial nations that foreign exchange moves should reflect economic fundamentals, Watanabe said. "But if there are abrupt movements, or if the market overshoots, we are very much ready to act," Watanabe said. The market is awaiting the U.S. January trade data set to be released Friday. The report could focus attention back on the U.S. economy's long-term problems that have driven the dollar lower in recent years. Concerns about the massive trade and budget deficits have weighed on the dollar, although such worries have subsided recently somewhat compared to last year. The market also expects Japan's plan to limit government guarantees on bank deposits from April 1 to push the yen down. Now, all bank deposits in Japan are guaranteed by the government in total. With the change in regulations, Japanese may start shifting their savings to other currencies and other types of investments.
