FOREX-Yen corrects higher against dollar, euro from recent lows

Mon Jan 7, 2013 7:07pm EST

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* Euro supported by expectations ECB will hold rates steady this week

* Yen still pressured in long term by views of BOJ easing

By Lisa Twaronite

TOKYO, Jan 8 (Reuters) - The yen bumped higher against the dollar and the euro in early Asian trading on Tuesday, as investors took profits after the Japanese unit's recent surge.

The euro was steady against the dollar, buying $1.3124, holding well above its three-week low of $1.2998 touched on trading platform EBS on Friday, as investors looked ahead to this week's European Central Bank meeting.

"From a fundamental and technical perspective, the euro/dollar appears poised for a stronger recovery," said Kathy Lien, managing director at BK Asset Management.

"Fundamentally, a reduction in sovereign risk this year should help restore confidence in euro zone assets and technically, $1.30 is a significant level for the currency," she said in a research note.

Investors expect the ECB to refrain from cutting interest rates at its regular policy meeting on Thursday, though some expect the bank to do so later this year.

While a majority of economists recently polled by Reuters expect the ECB Governing Council to hold its main refinancing rate at a record low 0.75 percent, there was no consensus over its next move, reflecting a similar split among policymakers themselves.

The euro dropped 0.6 percent against the yen to 114.53 yen, moving away from its 18-month high of 115.995 yen set on EBS last week.

The dollar skidded about 0.6 percent to 87.28 yen, moving away from Friday's session high of 88.48 yen on trading platform EBS, which was its loftiest peak against the Japanese currency since July 2010.

While many traders had said the yen was due for a correction after its recent slump, it remains pressured by expectations that new Prime Minister Shinzo Abe will implement fiscal stimulus and push the Bank of Japan to take drastic monetary steps to pull the country out of deflation.

The new government will set up schemes worth nearly $5 billion to boost businesses, including helping them buy foreign companies, according to a draft economic stimulus package seen by Reuters on Monday that could be approved later this month.

The Bank of Japan next meets on Jan. 21-22. Japanese media reported on Tuesday that the government and central bank were considering issuing a policy accord that sets job stability and a 2 percent inflation target as a shared goal, but might not set a deadline for achieving the target.

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