FOREX-Japan monetary easing knocks yen, losses seen muted
* Yen falls after BOJ increases asset purchase
* But dollar/yen could struggle to rise to 80 yen
* Euro slips vs yen on profit-taking, drops against dollar
By Anirban Nag
LONDON, Sept 19 (Reuters) - The yen fell to one-month low against the dollar on Wednesday after the Bank of Japan eased monetary policy more than expected, but with other major central banks also easing, its losses were likely to be limited.
The BOJ's move encouraged investors to take more risk. This nudged the euro higher against the dollar before it succumbed to fresh profit-taking. Talk of a European central bank diversifying out of the euro also weighed on the currency.
The dollar jumped to 79.23 yen, its highest since Aug. 22, after the BOJ's decision. This took it well above a seven-month low of 77.13 yen hit last week. It was last trading at 78.75 yen, flat on the day, with stops cited below 78.45 yen.
The BOJ increased asset purchases by 10 trillion yen, almost double than what some had expected. This followed aggressive monetary easing by the U.S. Federal Reserve and a European Central Bank plan to buy unlimited amount of government bonds of indebted euro zone states.
But analysts said the yen's falls could be limited as the Fed easing had put the dollar under selling pressure while global economic worries may temper risk appetite. All this will keep the risk of currency intervention by the Japanese alive.
"We are at around 79 yen and if it drops below the 78 handle, we would expect verbal intervention to be ramped up. If it falls below 77 yen we can expect them to intervene," said Ned Rumpeltin, head of G-10 FX strategy at Standard Chartered Bank.
"We are long-term bears on the yen, but until U.S. yields move higher on a sustained basis, we do not expect the dollar to rise much. Also with half-yearly book closure coming up in Japan, we could see some exporter demand for repatriation flows."
Analysts said a repeat of the yen's sharp fall in February-March, when the dollar hit 84.187 yen in the wake of surprise easing by the BOJ, was unlikely as both the ECB and the Fed are viewed as having eased more aggressively.
The dollar faces stiff resistance at its 200-day moving average at 79.32 yen, followed by its August high of 79.66 and then the psychological 80 yen level.
"The real test for dollar/yen is whether the current move can carry it above 80 yen," said Niels Christensen, currency strategist at Nordea in Copenhagen. "I think it will run out of steam as you need very good numbers out of the U.S. and risk appetite to maintain pressure on the yen."
BOJ Governor Masaaki Shirakawa said Japan's economic recovery may be delayed by six months due to a prolonged slowdown in global growth.
The euro erased earlier gains against the yen. The single currency was down 0.4 percent on the day at 102.47 yen, well below an earlier high of 103.63 yen.
Its drop against the yen saw it cut earlier gains versus the dollar. It traded at $1.3000, well below Monday's four-month high as analysts said its sharp rise since the action by the ECB and Fed may have been overdone.
The euro hit $1.31729 on Monday, its strongest since early May, but has since eased. Traders cited robust sovereign bids at $1.2980/90 with stop loss orders below $1.2980.
Given that the euro had rallied some 9 percent since late July, traders said the pullback reflected some mild profit-taking as markets waited to see whether Spain would apply for aid and trigger the ECB's bond-buying programme.
While many market players expect Spain eventually to ask for a bailout, some say investors' patience could be tested as Madrid is likely to resist tough conditions which some northern euro zone countries would want imposed in return for any aid.
Spain's deputy prime minister, Soraya Saenz de Santamaria, said on Tuesday the government was still considering the terms of a bailout.
The euro was expected to remain broadly in favour, however, as the ECB's plans to tackle the debt crisis have encouraged investors to pare aggressive short positions.
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