FOREX-Yen rallies vs dollar and euro on Japan minister's comments

Tue Jan 15, 2013 9:59am EST

Related Topics

* Yen regains ground vs dollar on minister's comments

* Japan's Amari warns of negative impact of weak yen

* Dollar pares losses versus yen after mixed U.S. data

* German data weighs on euro

By Julie Haviv

NEW YORK, Jan 15 (Reuters) - The yen gained against the dollar on Tuesday, rebounding from four straight days of losses that pushed it to a 2-1/2 year low as a warning from a Japanese minister about the disadvantages of excessive yen weakness prompted investors to shed bearish bets.

After gaining an impressive 2.3 percent since the start of the year, many believe the dollar was firmly poised for profit taking, but its fall should be temporary given widespread expectations of aggressive monetary easing by the Bank of Japan.

The dollar last traded down 0.8 percent at 88.72 yen, hurt by comments from Japanese Economics Minister Akira Amari who said excessive yen weakness could hurt people by raising import prices.

Amari's comments countered comments made by officials over the past month that have strongly encouraged yen weakness.

"I suspect that there is near-unanimity in the market that the yen has fallen too far, too fast, but also enthusiasm to sell into corrections such as this,' said Kit Juckes, foreign exchange strategist at Societe Generale in London.

Traders cited support at 88.20 yen, the dollar's 200-hour moving average, while reported stop loss sell-orders at 89.50 yen could cap any recovery in the U.S. currency. Traders also cited option barriers at 90 yen.

"While this move was triggered by (the minister's) comments, there are lots of people out there who believe the yen is over-extended and so this pull-back isn't that surprising," said Jane Foley, senior currency strategist at Rabobank.

"We now have to see if the pull-back continues or if people are looking at this as an opportunity to get even shorter yen."

The dollar hit a trough of 88.27 yen during the global session, but pared losses in the New York session after an array of mixed U.S. data.

U.S. retail sales rose more than expected in December, manufacturing in New York state contracted for a sixth month in January while U.S. producer prices fell in December for the third straight month.

The dollar's setback came a day after it hit 89.67 yen, its highest since June 2010.

Bets on aggressive monetary easing from the Bank of Japan have weighed heavily on the yen in recent months. The central bank has been under relentless pressure from newly elected Prime Minister Shinzo Abe to adopt a 2 percent inflation target to beat deflation once and for all.

It holds its next policy meeting on Jan. 21-22.

Amari's comments also buoyed the yen against the euro, with the single currency last trading down 1.2 percent at 118.26 yen. The euro struck a 20-month peak of 120.12 on Monday.

EURO SLIDES

The euro fell against the dollar for the first time in four sessions as some Asian central banks booked profits on its latest rally. It last traded at $1.3332, down 0.4 percent on the day, below Monday's 11-month high of $1.3403.

Receding expectations of a rate cut from the European Central Bank in the near term helped the euro smartly outperform many of its peers in recent sessions, but data on Tuesday served as a reminder that its economic backdrop remains unimpressive.

Indeed, the German economy was hit hard by the euro zone crisis in the final quarter of last year, shrinking more than at any point in nearly three years as traditionally strong exports and investment slowed, the Statistics Office said on Tuesday.

Despite its fall against the dollar and yen, the euro extended gains against the Swiss franc, rising to a fresh 13-month high. The euro rose to 1.23865 francs on trading platform EBS, its highest level since December 2011.

The Swiss franc has come under selling pressure as concerns about the euro zone debt crisis have receded, prompting investors who had bought the Swiss currency as a refuge from the euro's problems to cut long positions.

Euro/Swiss franc implied volatilities, or demand to hedge against sharp currency swings, have risen sharply. The one-month vols have risen to 6.1 percent from around 2 percent before the European Central Bank interest rate decision last Thursday.

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