FOREX-Yen rises for 3rd day post-BoJ, euro edges up vs dollar

Wed Jan 23, 2013 10:21am EST

Related Topics

* Yen three-day gain best since June 2012
    * Long-term yen weakness to resume
    * Strategists say LTRO repayment could lift euro

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 23 (Reuters) - The yen edged higher against
the dollar and euro on Wednesday, gaining for a third straight
day, still benefiting from the Bank of Japan's monetary easing
that fell short of expectations.
    The euro, meanwhile, drifted higher against the dollar.
Overall, sentiment towards euro zone assets continued to improve
and investors positioned for euro-area banks to repay part of
the loans taken from the European Central Bank last year. 
    The yen, on the other hand, has risen 1.9 percent versus the
dollar the last three days, the best three-day gain in seven
months.
    The move to end years of economic stagnation, which included
a pledge to double its inflation target to 2 percent --its
boldest action yet -- but it had already been priced in by
markets and fell short of lofty expectations for a faster,
substantial stimulus boost.
    "The yen's rally is an extension from yesterday's post-BoJ
gains," said Greg Moore, currency strategist at TD Securities in
Toronto. "A lot of what the BoJ announced yesterday has already
been priced in and there were a lot of potential issues about
some of its targets."
    The dollar fell 0.1 percent to 88.58 yen, off a 2-1/2
year high of 90.25 yen on Monday. The U.S. currency is still up
around 11 percent against the yen from mid-November.
    After weeks of intense speculation that weighed on the yen,
some market players were a bit disappointed by the BOJ's
decision that its open-ended commitment to buying assets would
come into effect only next year. 
    Strategists said while the yen would likely resume its
overall trend and fall across the board, investors would refrain
from betting against considerable yen weakness right away.
    TD's Moore said he doesn't forsee the dollar falling much
from current levels, adding that the currency pair would likely
trade in the "high 80s to low 90s". 
    A change in BOJ leadership in April is expected to weigh on
the yen, given prospects for Prime Minister Shinzo Abe to
appoint a governor favouring more aggressive monetary easing.
    Analysts saw the yen weakening over the medium term, based
on expectations the BOJ will remain under pressure to inject
more stimulus into the economy, possibly pushing the dollar to
100 yen, a level last seen in April 2009. 

    EURO STRENGTH
    The euro slipped against the yen to 118.05 yen,
with three-day losses at 1.5 percent.
    Against the dollar, it edged up 0.1 percent to $1.3333
, holding within sight of last week's 11-month high of
$1.3404. Market players reported bids at $1.3275-85.
    The euro has been buoyed by receding fears about the debt
crisis, highlighted by European Central Bank president Mario
Draghi comments on Tuesday that the euro zone could begin 2013
with more confidence. 
    While strong German economic data on Tuesday lent some
support to the euro, strategists said if the euro zone's flash
Purchasing Managers' Index figures due on Thursday beats
forecasts, the euro could break above the $1.34 level. 
    Some analysts said the euro could rise before an
announcement on Friday on the size of next week's first
repayments of three-year loans taken by banks from the ECB a
year ago.
     That is likely to lead to some shrinking of the ECB's
balance sheet at a time when the Federal Reserve and the BOJ are
still expanding theirs. Balance sheet expansion usually hurts a
currency, so a repayment to the ECB should help the euro
especially against the dollar and the yen, traders said.
    "If (the repayment) is of a substantial size it would
confirm the systemic risks in euro zone are fading
further...that could be positive for the euro," said Audrey
Childe-Freeman, head of foreign exchange strategy at BMO Capital
Markets.
    Banks took more than one trillion euros in ultra-cheap LTRO
(loan-term refinancing operation) loans from the ECB. A Reuters
poll showed traders expected around 100 billion euros to be paid
back next week.
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