FOREX-Yen tumbles on forceful BoJ action forecast, euro fares well

Thu Jan 17, 2013 12:02pm EST

Related Topics

* Dollar and euro up more than 1 percent vs yen

* Yen falls as Amari says remarks misinterpreted

* Technical break of 90 yen could confirm bullish dollar move

* Euro gains on strong Spanish debt sale and risk appetite

By Julie Haviv

NEW YORK, Jan 17 (Reuters) - The yen plummeted against the dollar and euro on Thursday as investors bet that the Bank of Japan will soon embark on aggressive policy easing while the euro thrived as strong sovereign bond auctions assuaged concerns about the region's three-year-old debt crisis.

The dollar and euro gained significant value versus the yen after sinking for two straight sessions, returning to a trend that has been in place for several months based on expectations that the BoJ will become more forceful in its actions to bolster the beleaguered economy.

It has so far been a banner year for the greenback and euro versus Japan's currency, notching a nearly 3.2 percent and around a 4.4 percent gain, respectively. The impressive appreciation follows dollar/yen and euro/yen gains of about 11.3 percent and roughly 14.3 percent in the fourth quarter.

The yen fell in Asian trade after Japan's Economics Minister Akira Amari was quoted as saying his remarks on Tuesday about the negative impact of excessive yen weakness had been misinterpreted.

The dollar rose as high as 89.56 yen and last traded at 89.48, up 1.2 percent, marking the biggest rise since February 2012. The price is also within striking distance of Monday's 2-1/2-year high of 89.67 yen.

"With key potential resistance nearby, around the 90.00 level, a breakout above that level would confirm a continuation of the strong bullish trend that has been in place for the past four months since the 77.00 area low, and could move towards further potential resistance to the upside around the 92.00 level," said James Chen, chief technical strategist at FX Solutions in Saddle River, New Jersey.

"To the downside, the 88.00 level may continue to serve as key potential support within the strong bullish trend," he said.

Strategists said that increasing bets on aggressive policy easing by the Bank of Japan would continue to drag the yen lower before policymakers meet on Jan. 21-22, when it is widely expected to adopt a 2 percent inflation target and perhaps extend the current asset purchase program.

But the yen could rebound if the Bank of Japan falls short of matching market expectations for implementing a very loose monetary policy.

"There is a risk of a disappointment (from the Bank of Japan), but the pattern is that every time there has been a recovery in the yen it has been small and investors are quick to put on new short yen positions," Nordea FX strategist Niels Christensen said.

"There seems to be a very firm belief this trend (of dollar/yen rising) will continue."

The dollar pared gains against the yen after U.S. data showed factory activity in the U.S. mid-Atlantic region unexpectedly contracted in January.

EURO RALLIES

An improved appetite for risk emerged after a solid bond auction from debt-burdened Spain and after earlier U.S. data reflected strength in the world's largest economy.

Groundbreaking to build new U.S. homes accelerated in December to its fastest pace in over four years while the number of Americans filing new claims for unemployment benefits tumbled to a five-year low last week.

Spain's bond auction buoyed the euro, which last traded at 119.48 yen, up 1.8 percent on the day. That brought it closer to a 20-month peak of 120.12 hit on Monday.

The euro is up 1.2 percent against the dollar so far in 2013, largely due to growing optimism about the euro zone after surprisingly upbeat comments from European Central Bank President Mario Draghi last Thursday.

The next important event for financial markets is Chinese data on Friday. Should the world's second-largest economy show strength, riskier currencies, such as the Australian dollar, should rally.

The euro last traded at $1.3354, up 0.5 percent on the day, but below Monday's 11-month high of $1.3403, according to Reuters data.

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