RPT-FOREX-Yen slides to two-year low on Japan easing view, euro firmer

Wed Dec 26, 2012 12:40pm EST

Related Topics

* Abe voted in as Japanese prime minister
    * 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 dropped to a more than
two-year low against the dollar on Wednesday, after Shinzo Abe
assumed office as Japan's new prime minister and repeated 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 midday New York
trading was firmer 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.
    The euro also surged to a 16-month high against the yen. 
    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, with only Japanese and U.S.
markets open on Wednesday. Hong Kong and Australia also remained
closed on Wednesday.
    New Japanese 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 comments from Japanese
Finance Minister Taro Aso, who said on Wednesday he was
instructed by Abe to loosen the limits on bond issuance under
the stimulus package. Under Japan's stimulus plan, the debt
issuance cap has been set at 44 trillion yen..
    That suggested further yen weakness as Japan floods the
market with its currency. Aso's remarks were one of the
catalysts for the yen's drop to a more than two-year low in
mid-morning trading.         
    Also undermining the yen were 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 85.70 yen, its
strongest level since mid-September 2010, breaking through
resistance at its 200-week moving average around 84.95 yen. It
last stood at 85.60 yen, up 1 percent on the day.
    The yen has fallen more than 10 percent against the dollar
so far this year. 
    BK's Schlossberg said dollar/yen could hit Abe's ultimate
target of 90 yen if he continues to keep pressure on the BoJ to
further loosen its stance.
    Against the yen, the euro rose as high as 113.39
yen, a 16-month high. It last stood at 113.17 yen, up 1.3
percent. 
    Technical analysts cited little resistance above last week's
high, with the euro's 200-week moving average still a good
distance, around 115.00 yen. The European unit has not closed
above that average since late Sept. 2008.         
    The U.S. dollar index, meanwhile, was little changed
at 79.632. 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
unfinished fiscal negotiations with Congress, according to an
administration official.  
    The next session of the U.S. Senate is set for Thursday, but
the issues presented by the "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. 
    "Markets are in a stalemate with respect to the fiscal
cliff," said Brian Daingerfield, currency strategist, at RBS
Securities in Stamford, Connecticut. "Lawmakers aren't back yet
and I think the headlines on the fiscal cliff will ramp up
starting tomorrow."
    The euro traded at $1.3220, up 0.3 percent.
    "It has been year-end flows more than anything else for
euro/dollar. It's extremely quiet and even small moves tend to
get exaggerated," said Daingerfield.
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