FOREX-Yen rises as minister warns on excessive weakness

Tue Jan 15, 2013 4:54am EST

Related Topics

* Yen regains ground vs dollar on econ minister comments

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

* Strategists say pullback in dollar/yen temporary

By Anooja Debnath

LONDON, Jan 15 (Reuters) - The yen rebounded from a 2-1/2-year low against the dollar on Tuesday, as investors took profit on bets against the Japanese currency after a minister warned of the potential negative impact of excessive yen weakness.

Some strategists said the fall in the dollar would be temporary, however, with investors expected to buy the U.S. currency back.

The dollar was down 0.8 percent on the day at 88.75 yen, having fallen as low as 88.62 yen after Japanese Economics Minister Akira Amari said excessive yen weakness could hurt people's livelihoods by raising import prices.

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.

"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'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 unrelenting 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.

The yen's rise saw the euro slip by 0.9 percent on the day to 118.63 yen, retreating swiftly after Amari's comments from a 20-month peak of 120.13 hit on Monday.

BERNANKE

Remarks on Monday from U.S. Federal Reserve Chairman Ben Bernanke, suggesting the central bank was in no hurry to withdraw monetary stimulus, known as quantitative easing or QE3, also prompted some investors to sell the dollar.

Bernanke also warned the world's largest economy was at risk from politicial gridlock over the deficit.

"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 United States came close to its $16.4 trillion debt limit on Dec. 31 and is employing special measures to meet its obligations. The Treasury Department said those steps could be exhausted by mid-February.

The Fed's stance contrasted with a more upbeat European Central Bank, which last week said the euro zone economy would recover later in 2013 and there were already signs of stabilisation.

The euro last traded at $1.3367, down slightly on the day but not far from Monday's near 11-month of $1.3404. Immediate resistance was seen around $1.3490, the 2012 high hit last February.

Greater confidence in the euro zone has helped the single currency outperform many of its peers in recent sessions.

Against the Swiss franc it hit a 13-month high of 1.23855 francs, before paring gains to last trade close to flat on the day at 1.2335 francs.

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