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Dollar rises against yen on recovery hopes

TOKYO - The dollar rose against the yen in Asia on Thursday, buoyed by recovery hopes after the Federal Reserve said the downturn in the US economy appeared to be slowing.

The dollar firmed to 97.75 yen in Tokyo morning from 97.66 yen in New York late Wednesday, helped by an increase in US consumer spending.

Market players were heartened after the Federal Reserve said the pace of economic contraction in the United States appeared to be slowing, said Yuji Saito, head of forex at Societe Generale in Tokyo.

But the US currency was lower against the euro, which rose to 1.3295 dollars from 1.3269, as the glimmers of a recovery boosted demand for riskier assets. The European currency gained to 129.94 yen from 129.60.

The Fed statement “lends credence to the view that the worst of the global financial crisis is now behind us,” Standard Chartered analysts wrote in a note.

That could boost demand for risky currencies and weigh on safe-haven currencies such as the dollar and the yen, they said.

Japan announced its first increase in factory output in six months, but traders said they were more focused on the US data.

The dollar was also lifted by position squaring ahead of the May Day holiday in Europe on Friday as well as a three-day break in Japan next week, they said.

Investors were reluctant to take risks while the fate of US auto giant Chrysler hangs in the balance and the results of Washington’s ”stress tests” of US banks are expected next week.

Investors also remained cautious about the swine flu outbreak, as a toddler in the United States became the first to die of the disease outside of Mexico.