FOREX-Yen rebounds on Japan Amari's remarks, dollar struggles after Fed

Tue Jan 15, 2013 1:53am EST

* Econ min Amari says excessive yen weakness negative for Japan

* Bernanke suggests Fed in no hurry to withdraw stimulus

* Euro buoyed by ECB outlook, receding crisis fear

* Dollar/yen down 0.7 pct, euro/dollar not far from 11-month high

* Euro near 13-month high vs Swiss franc, 9-month high vs pound

By Hideyuki Sano

TOKYO, Jan 15 (Reuters) - The yen rebounded from a 2-1/2-year low on Tuesday after Japanese Economics Minister Akira Amari's remarks that excessive yen weakness could have a negative impact on the country sparked profit-taking in heavy bets against the Japanese currency.

The dollar was also weighed down by comments from the head of the Federal Reserve suggesting the U.S. central bank was in no hurry to withdraw monetary stimulus from the world's biggest economy.

The dollar dropped about 0.7 percent to 88.95 yen on the day, having fallen as low as 88.62 point at one point after Amari said excessive yen weakness could hurt the livelihood of people by boosting import prices.

"That the yen's weakness has its downside for Japan is something the market has almost completely ignored until now," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

"We'll have to see whether Amari was trying to put a brake on the yen's slide or whether he has a certain desirable range for the yen in mind, say, like 85-90 yen," Uno added.

The dollar's setback came a day after it rose as high as 89.67 yen, its highest level since June 2010, on expectations the Bank of Japan will be forced to take bold easing action to jump-start a sluggish economy.

The BOJ is under unrelenting pressure from newly elected Prime Minister Shinzo Abe to adopt a 2 percent inflation target to beat deflation once and for all

While further monetary easing and subsequent weakness in the yen are likely to help Japanese exporters, there are costs to the economy as well, such as a rise in the country's import bills, which could work like a tax hike.

Earlier, the U.S. currency also failed to extend its recent gains to test the big number of 90 yen as U.S. Fed chief Ben Bernanke said the recovery was still fragile and warned the economy was at risk from political gridlock over the deficit.

His comments also came after the president of the San Francisco Federal Reserve Bank, John Williams, said he expected the central bank's bond buying would be needed "well into the second half of 2013."

"Overall, these remarks do not change our view that QE3 will continue into at least the end of 2013 as the recovery remains moderate, while we also see downside risks for the economy stemming from the debt ceiling uncertainty," said Vassili Serebriakov, strategist at BNP Paribas.

The Fed's stance stood in contrast to a more upbeat European Central Bank, which recently said the euro zone economy will recover later in 2013 and there are already signs of stabilisation.

Against this backdrop, the euro was buoyed near an 11-month high, with receding worries over a full-blown financial crisis in Europe encouraging investors to shift some funds back to the euro.

The euro last traded at $1.3356, down slightly on the day but still not far from Monday's high of $1.3404, its highest level in 11 months. Immediate resistance was seen around $1.3490, a level that had capped the currency last year.

The single currency outperformed many of its peers over the last few sessions, hitting a 13-month high against the safe-haven Swiss franc, in another sign of receding fear over the euro zone's debt crisis.

The single currency rose as high as 1.23855 franc and last traded at 1.23470 franc, edging higher even after Monday's massive 1.2 percent gains.

The euro also held near a nine-month high against the British pound, last trading at 0.8309 pound after having risen as high as 0.8326 on Monday.

Against the yen, the euro scaled a fresh 20-month peak of 120.13 on Monday before Amari's comments lifted the yen from lows. It last stood at 118.83 yen, down 0.2 percent on the day.

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