FOREX-Yen slides while euro extends broad gains

Thu Jan 17, 2013 8:21am EST

Related Topics

* Dollar and euro up more than 1 pct vs yen

* Euro up vs dollar, hits 15-month high vs Swiss franc

* Strong Spanish debt auction helps euro extend gains

* Yen falls as Amari says his remarks were misinterpreted

By Anooja Debnath

LONDON, Jan 17 (Reuters) - The yen weakened broadly on Thursday as investors sold in anticipation of aggressive monetary policy easing by Japan while the euro extended broad gains after a series of strong sovereign bond auctions.

Analysts said that strong demand at a Spanish bond auction buoyed sentiment towards the euro, which gained almost 2 percent on the day to hit 119.66 yen.

This brought it closer to a 20-month peak of 120.13 yen hit on Monday.

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.

The yen resumed falls in Asian trade, erasing some of its gains in recent days, after Japan's Economics Minister Akira Amari was quoted saying that his remarks on the negative impact of excessive yen weakness had been misinterpreted.

The dollar rose more than 1 percent on the day against the Japanese currency to 89.49 yen, leaving it with the potential to test Monday's 2-1/2-year high of 89.67 yen.

"He (Amari) reversed his earlier comments today and markets added new short yen positions," said Arne Lohmann Rasmussen, head of FX research at Danske Bank, adding that the Spanish bond auction "certainly helped the euro".

Traders cited strong chart support at 87.80 yen, the low struck on Wednesday, and said that a reported options barrier at 90 yen could act as resistance.

Analysts said that the yen could rebound if the Bank of Japan failed to match market expectations for implementing a very loose monetary policy, though they said that such a move would be short-lived.

"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."

EURO STRENGTH

Growing optimism about the euro zone after surprisingly upbeat comments from European Central Bank President Mario Draghi last Thursday continued to boost the euro, with analysts expecting further gains to come.

The euro rose 0.6 percent against the dollar to hit a session high of $1.3378. The single currency was buoyed by a strong Spanish auction and stop-loss buy orders triggered at $1.3330.

This left it in sight of Monday's 11-month high of $1.3404.

"There is still some upside left in the euro, which is heading towards the $1.34 level," Danske's Rasmussen said. He expects the euro to rise to $1.37 in the next three to six months.

The euro also hit a 15-month high against the Swiss franc, of 1.24580 francs, having broken through a reported options barrier at 1.2450 francs. More gains would see it target the peak of 1.2475 francs, hit on Oct. 19, 2011.

It also rose to a 9-1/2 month high against the British pound and hit a two-week high against the Australian dollar.

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