FOREX-Yen falls to 20 month low on new prime minister, euro firmer

Wed Dec 26, 2012 9:13am EST

Related Topics

* Abe voted in as prime minister, to select allies for his
cabinet
    * BoJ minutes show some called for action if economy worsens
    * Euro hits 16-month high vs yen

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Dec 26 (Reuters) - The yen slumped to a 20-month
low against the U.S. dollar and a 16-month trough versus the
euro on Wednesday, after Shinzo Abe assumed office as Japan's
new prime minister and reiterated his pledge to push for more
drastic monetary and fiscal measures and tame the strong
Japanese currency.
    Meanwhile the euro traded above $1.32 against the U.S.
dollar for a seventh straight session and in early New York
trading was up slightly on the day. Traders said the euro's gain
was due to position adjustment going into the end of the year,
with investors continuing to reduce short bets on the currency.
    Overall trading volume was thin with many global financial
centers still closed for the Christmas holiday. All G10 markets
except Japan were closed on Tuesday, and only Japanese and U.S.
markets were to open on Wednesday. Hong Kong and Australia also
remained closed on Wednesday.
    New Japan prime minister Shinzo Abe said on Wednesday his
government will pursue bold monetary policy, a flexible fiscal
strategy, and a growth plan to encourage private investment
.  Abe, whose party won a landslide victory on
Dec. 16, was elected prime minister by parliament's lower house
on Wednesday.
    "The election of Abe has had a galvanizing effect on the
dollar/yen exchange rate and he has been able to accomplish more
in two months of jawboning than the BoJ has...over the past
several years," said Boris Schlossberg, managing director of FX
strategy at BK Asset Management in New York. 
    The yen was further weighed down by minutes of the Bank of
Japan's November policy meeting released on Wednesday which
showed some board members considered policy options if the
outlook for the economy and prices were to worsen. 
    One board member even suggested that the BoJ commit to
buying assets in an open-ended manner, without setting a strict
deadline, until it achieved its 1 percent consumer inflation
target. 
     The U.S. dollar rose as high as 85.48 yen, its
highest since April 2011, breaking through resistance at its
200-week moving average around 84.95 yen. It last stood at 85.34
yen, up 0.7 percent on the day. Its next resistance seen at the
dollar's April 2011 high of 85.53 yen. Options-related positions
were said to lie around 85.50 yen.
    "Dollar/yen has now risen six big figures since Abe started
his campaign for more accommodative monetary policy and could
move towards his ultimate target of 90.00 if he continues to
keep the pressure on BoJ to further loosen its stance,"
Schlossberg said.
    Against the yen, the euro rose as high as 112.92
yen, a 16-month high. It last stood at 112.68 yen, up 0.8
percent. 
    Technical analysts cited little resistance above last week's
high, with the euro's 200-week moving average still far away,
around 115.00 yen. The European unit has not closed above that
average since late Sept. 2008.
    
    The U.S. dollar index was little changed at 79.629.
On Tuesday, it rose as high as 79.780, its strongest level since
Dec. 14.
    Ongoing concerns about the U.S. budget impasse continued to
underpin the U.S currency.
    President Barack Obama may return to Washington from his
Hawaiian holiday as early as Wednesday evening to address the
unfinished negotiations with Congress, according to an
administration official.  
    The next session of the U.S. Senate was set for Thursday,
but the issues presented by "fiscal cliff" of tax hikes and
spending cuts scheduled to take effect next year were not on the
calendar. 
    The U.S. House of Representatives has nothing on its
schedule this week, but its members have been told they could be
called back on 48 hours notice, making their Thursday return a
theoretical possibility. 
    The euro traded at $1.3204, up 0.2 percent.
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