FOREX-BOJ easing bets help dollar regain ground vs yen

Wed Jan 9, 2013 4:37am EST

Related Topics

* Yen comes under renewed pressure vs dollar and euro

* Expectations of BOJ easing likely to weigh on yen

* Euro steady ahead of Thursday's ECB meeting

By Nia Williams

LONDON, Jan 9 (Reuters) - The dollar climbed against the yen on Wednesday, moving back towards a 2-1/2 year high hit last week, as renewed expectations of easier Bank of Japan monetary policy led some investors to sell the Japanese currency.

The dollar rose 0.7 percent on the day to 87.61 yen, lifting off a near one-week low of 86.82 hit earlier in the session. That low marked a loss of about 1.9 percent from last Friday's peak of 88.48 yen, its highest since July 2010.

Strategists said the dollar's pullback from the 2-1/2 year high had lured in investors waiting for a chance to buy on dips, and speculation the BOJ could ease further at their Jan. 21-22 policy meeting could keep the yen under pressure.

"Flows overnight suggested there was some appetite to pick up the dollar and that encouraged people back into the trade. No one is going to want to be short yen going into the BOJ meeting," said Derek Halpenny, European head of FX research at Bank of Tokyo-Mitsubishi.

Sources familiar with the BOJ's thinking told Reuters the central bank was likely to adopt a 2 percent inflation target at the meeting, double its current goal, and issue a statement with the government pledging to pursue bold monetary easing steps.

The BOJ will also consider easing monetary policy again this month, probably through a further increase in its 101 trillion yen ($1.2 trillion) asset buying and lending programme, the sources said.

Expectations that Japan's newly elected government would push the BOJ to adopt more forceful monetary stimulus measures have pushed yen sharply lower in recent months. But the dollar and the euro retreated against the yen this week as investors locked in profits on those currencies' steep gains.

At its peak against the yen on Friday, the dollar had gained nearly 12 percent since early November, and traders said the rally had been ready for a pause.

"There do seem to be some dollar buyers out there who were looking for the dip in dollar/yen to pick it up," said Mitul Kotecha, head of global FX strategy at Credit Agricole in Hong Kong, although he added a further near-term pullback in the dollar could not be ruled out.

Possible support for the dollar lies at 86.54 yen, its low on Jan. 2, and a breach of that level could open the way for a drop to around 85.90 yen, he said.

A trader for a Japanese bank in Bangkok said some short-term traders seemed to be expecting the dollar to retreat further versus the yen, while longer-term traders appeared content to buy the U.S. currency on dips.

The euro rose about 0.8 percent to 114.68 yen, but was still some distance from an 18-month high of 115.995 yen set on trading platform EBS on Jan. 2.

ECB IN FOCUS

The single currency held steady at $1.3080. Technical support was expected near the Jan. 4 low of $1.2998 and from the 55- and 50-day moving averages, also around that level.

Some strategists said expectations the European Central Bank will keep its interest rates on hold on Thursday were also likely to support the euro, although some investors and economists believe rates will be cut later this year.

Investors were also looking ahead to Spanish and Italian bond auctions on Thursday that will test market appetite for peripheral euro zone debt and could help gauge the likelihood of Madrid needing financial aid later in the year.

The dollar index was close to flat at 80.351 while commodity currencies inched higher. The Australian dollar rose 0.1 percent to US$1.0514 while the New Zealand dollar climbed 0.3 percent to US$0.8386.

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