FOREX-Yen slumps versus dollar, euro on policy easing view

Wed Dec 26, 2012 3:02pm EST

Related Topics

* Abe voted in as Japanese prime minister
    * BoJ minutes show some called for action if economy worsens
    * Attention to shift back to U.S. 'fiscal cliff' discussions

    By Wanfeng Zhou
    NEW YORK, Dec 26 (Reuters) - The yen tumbled to a more than
two-year low against the dollar and a 16-month trough versus the
euro on Wednesday after Japan's new prime minister repeated his
vow to battle deflation and a strong Japanese currency.
    Expectations that Shinzo Abe, who took office on Wednesday,
will force the Bank of Japan to ease monetary policy further
have caused steep losses in the yen, putting it on track for a
drop of more than 10 percent this year, the biggest since 2005.
    Trading volume was thin as many global financial centers
remained closed for the Christmas holiday. All G10 markets
except Japan were closed on Tuesday, with only Japanese and U.S.
markets open on Wednesday.
    Abe promised aggressive monetary easing by the Bank of Japan
and big fiscal spending by the debt-laden government to fight
deflation and weaken the yen to make Japanese exports more
competitive. Investors will wait to see if the talks will be
backed by policy action. 
    "Since the yen's sharp sell-off has come mostly from
jawboning on the part of Mr. Abe, the yen could soon find its
scope for further depreciation may slow in the absence of policy
initiatives by the country's new administration," said Joe
Manimbo, senior market analyst at Western Union Business
Solutions, in Washington.
    The dollar rose as high as 85.70 yen on Reuters data,
its strongest level since mid-September 2010, breaking through
resistance at its 200-week moving average around 84.95 yen. It
last stood at 85.61 yen, up 1 percent on the day.
    The yen also came under pressure after minutes of the Bank
of Japan's November policy meeting released on Wednesday 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. 
    Comments from Japanese Finance Minister Taro Aso that he was
instructed by Abe to loosen the limits on bond issuance under
the stimulus package also hit the yen..
    Boris Schlossberg, managing director of FX strategy at BK
Asset Management in New York, said the dollar/yen could hit
Abe's ultimate target of 90 yen if he continues to keep pressure
on the BoJ to loosen its stance further.
    The euro rose 1.3 percent to 113.15 yen, having
risen as high as 113.39 yen, a 16-month high.
    Resistance is around the euro's 200-week moving average
around 115.00 yen. The euro has not closed above that average
since late Sept. 2008.
    The U.S. dollar index was little changed at 79.618,
with investors awaiting developments on the U.S. fiscal front.
On Tuesday, it rose to 79.780, the highest since Dec. 14.
    President Barack Obama is due back in Washington early on
Thursday for a final effort to negotiate a deal with Congress to
avert or at least postpone the "fiscal cliff" of tax increases
and government spending cuts set to begin next week.
 
    No specific bill dealing with the "cliff" was on the
schedule of either the U.S. Senate or House of Representatives,
which are expected to return on Thursday.
    "The safe harbor buck remained broadly in favor amid unease
and worry that the U.S. economy might topple over the dreaded
'fiscal cliff' early next year if Washington can't reach a debt
accord by Monday," Manimbo said.
    Against the dollar, the euro rose 0.3 percent to $1.3219
. 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.
    "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 Brian Daingerfield, currency strategist
at RBS Securities in Stamford, Connecticut.
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