FOREX-Yen advances for 3rd day post-BoJ; euro slips vs dollar

Wed Jan 23, 2013 12:26pm EST

Related Topics

* Yen's three-day gain biggest 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 as it continued to benefit from Bank of Japan monetary
easing which fell below expectations.
    The euro, meanwhile, fell to a one-week low against the
dollar and traders said this was due to technical factors.
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 1.8 percent versus the
dollar the last three days, the biggest 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 - had already been priced in by investors.
markets. In general, the BoJ's measures fell short of lofty
expectations for a faster, substantial stimulus boost.
    The BoJ has decided that its open-ended commitment to buying
assets would come into effect only next year. 
    "There was obviously disappointment about the BoJ's
measures. However, I don't see the moves the last three days as
a reversal of the bullish trend in dollar/yen," said Vassili
Serebriakov, currency strategist at BNP Paribas in New York.
    "If anything, this is just a correction after weeks of gains
in the dollar against the yen. We are still seeing a lot of
interest in buying the currency pair and we still expect further
upside," he added.
    The dollar fell 0.3 percent to 88.45 yen, off a
2-1/2-year high of 90.25 yen on Monday. The U.S. currency though
was still up around 11 percent against the yen from
mid-November.
    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.
    Greg Moore, currency strategist at TD Securities, said he
doesn't foresee the dollar falling much from current levels,
adding 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 favoring 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 dropped 0.5 percent against the yen to 118.05 yen
, with three-day losses at 1.9 percent. That's the
largest three-day loss since July 2012.
    Against the dollar, the euro fell 0.1 percent to $1.3307
, having hit a one-week low of $1.3263. Traders said the
euro may have been pressured by dollar buying at the 11:00 AM
EST (1600 GMT) fixing in London. Market players, however,
reported bids at $1.3275-85.
    The euro in recent sessions has been buoyed by receding
fears about the debt crisis, highlighted by European Central
Bank president Mario Draghi's 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 euro zone flash
Purchasing Managers Index figures due on Thursday beat
forecasts, the euro could break above $1.34. 
    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 to banks by 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.
    Banks took more than one trillion euros in ultra-cheap 
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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