FOREX-Yen drops to more than two-year low vs dollar; euro on a tear

Thu Jan 17, 2013 5:01pm EST

Related Topics

* BoJ to undertake further easing measures - sources
    * Yen falls as Amari says remarks misinterpreted
    * Technical break of 90 yen may confirm bullish dlr move
    * Euro gains on strong Spanish debt sale and risk appetite

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 17 (Reuters) - The yen plunged to a more than
2-1/2-year low against the dollar on Thursday, taking out a key
technical barrier following news of potential measures being
planned by the Bank of Japan to resuscitate the country's
sluggish economy.
    The euro, meanwhile, advanced against the dollar, gaining
after two days of losses, as a strong bond auction in Spain and
Portugal's possible return to the fixed-income market appeased
worries about the region's three-year-old debt crisis.
    The single currency also climbed to its highest in about
1-1/2 years against both the yen and Swiss franc.
    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.
    Citing sources familiar with the central bank's thinking,
Reuters reported on Thursday that the BoJ next week will
consider removing the 0.1 percent floor on short-term interest
rates and commit to open-ended asset buying until the 2 percent
inflation target is reached. 
    "The report just confirms expectations of aggressive easing
by the BoJ at next week's policy meeting," said Greg Moore,
currency strategist at TD Securities in Toronto. "It's pretty
dovish for the yen and that's why we have seen the yen hit new
lows against the dollar and euro."
    The dollar rose as high as 90.10 yen, taking out an options
barrier at 90. It last traded at 89.89, up 1.7 percent,
marking the biggest rise since November 2011 when the pair
notched gains of more then 3 percent after official BoJ
intervention.
    TD's Moore said it's difficult to pick a top on dollar/yen
given how fast the appreciation has been for the pair. But he
noted that based on technical charts, there is a head and
shoulders pattern evident at the 92-93 yen level.
    The yen had fallen earlier in Asian trade after Japan's
Economics Minister Akira Amari was quoted as saying that his
remarks on Tuesday about the negative impact of excessive yen
weakness had been misinterpreted.
    On Tuesday, he had said a weak yen could hurt the livelihood
of people by boosting import prices.
    The euro soared as high as 120.31 yen, its highest
since May 2011. It last traded at 120.23, up 2.4 percent, its
best daily gain since March 2011.
    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.
    Strategists said 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. 
    Analysts also said the prospect of a yen recovery increases
as the Japanese fiscal-year-end approaches. Japanese companies
and investment houses tend to buy back the yen to square up
positions for the end of the fiscal period.
    In a research note to clients, CIBC World Markets said
central banks may also have to rebalance FX reserves, buying the
yen to offset valuation losses. "As a result, the yen could stem
its decline in the near term."
    The dollar, meanwhile, pared gains against the yen after
U.S. data showed factory activity in the U.S. mid-Atlantic
region unexpectedly contracted in January..
    The U.S. data was a surprise for currency investors after
better-than-expected numbers on jobless claims and housing
starts. 
    
 
    
    EURO RALLIES
    An improved appetite for risk emerged after a solid bond
auction from debt-burdened Spain. The auction results buoyed the
euro, which last traded at $1.3380 against the dollar, up
0.7 percent on the day. 
    The euro was up 1.4 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 $1.3380, up 0.7 percent on
the day, but below Monday's 11-month high of $1.3403, according
to Reuters data. 
    Against the Swiss franc, the euro hit a peak of 1.2490
francs, the highest since May 2011. The euro was last
at 1.2480 francs, up 0.9 percent, rising more than 3 percent so
far this year.
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