FOREX-Dollar recovers from 3-week low vs yen

TOKYO, July 3 (Reuters) - The dollar recovered from a three-week low against the yen on Monday after the Japanese currency was unable to sustain a rally triggered by an upbeat survey of corporate sentiment.

The yen initially rose after the Bank of Japan's quarterly tankan poll for June produced a headline diffusion index of plus 21, a tad lower than forecasts but up from plus 20 in March and helping to pave the way for the BOJ to possibly raise interest rates from zero next week.

But the yen's gains were short lived due to dollar buying by Japanese importers and mutual funds, whose demand for the U.S. currency underlines interest among investors in higher-yielding currencies even as domestic rates look set to rise.


"People had sold dollars going into the figure, and the reaction after the data was quite small," said Luke Waddington, head of forex trading at Royal Bank of Scotland. "So people have had to cover those short positions."

By 0555 GMT, the U.S. currency edged up to 114.55 yen from around 114.45 yen in late U.S. trade on Friday.

It had fallen to 114.10 yen, its lowest level since mid-June, soon after the tankan was released.

Some analysts said that the yen had room to gain leading up to the BOJ's two-day policy meeting beginning on July 13.

"Today's tankan certainly boosted expectations that the BOJ will lift interest rates in July," said Hideki Hayashi, global strategist at Shinko Securities