FOREX-Yen selling resumes on Japan official comment; euro up

Thu Jan 24, 2013 10:00am EST

Related Topics

* Japan's verbal intervention continues
    * Euro, dollar rise more than 1 percent against yen
    * Sentiment on euro zone assets improving

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 24 (Reuters) - The yen posted steep losses
across the board on Thursday after three days of gains, weighed
down by Japan's record trade deficit and comments from a
Japanese economic official saying the government has no problem
with the dollar hitting 100 yen.
    The euro, meanwhile, rose against the dollar after economic
data from Germany indicated that the worst of the euro zone debt
crisis may have passed.
    But it was the yen that drew the most attention. 
    Traders cited reports quoting Japan's Deputy Economy
Minister Yasutoshi Nishimura as saying the yen's decline is not
over and a dollar/yen level of 100 would not be a concern.
Nishimnura added that only if the dollar rises to 110-120 yen
would it add to domestic import costs. 
    "(Nishimura) represents another official voice favoring
further yen weakness and the remarks probably supported the
latest bounce in dollar/yen which began overnight," said Bob
Lynch, chief currency strategist, at HSBC in New York. 
    "At some stage, the ability of this jawboning and verbal
intervention to drive the yen lower will become subject to
diminishing returns, but that does not appear to be the case
yet."
    The dollar was last up 1.4 percent at 89.84 yen,
rallying from a one-week low of 88.06 yen hit the previous day. 
    Traders said this move up in dollar/yen could face some
resistance ahead of stop-loss sell orders at 90 yen, but if it
does break through it could reach 90.25 yen, a 2-1/2 year high
hit on Monday.
    The yen's weakness became further entrenched after Japanese
Prime Minister Shinzo Abe said he expected the Bank of Japan to
achieve its 2 percent inflation goal as soon as possible.
 
    A record trade deficit for Japan in 2012 of 6.297 trillion
yen ($78.24 billion) didn't help the yen's cause either, adding 
to selling pressure on the currency. 
    The yen had rebounded earlier this week after the Bank of
Japan disappointed investors who were expecting an immediate
increase in its asset-purchasing programme. Still, the BoJ
delivered its most aggressive policy easing yet to snap the
economy out of years of stagnation. 

    EURO GAINS
    The euro saw choppy trade after flash private sector
activity data highlighted the diverging fortunes of the bloc's
biggest economies. Weak performance in France was offset by
numbers out of Germany showing that its private sector expanded
at the fastest rate in a year. 
    Traders said macro funds and asset managers were buying the
euro and if data continued to show prospects for the region were
improving, the currency could rise further.
    "The broader euro zone (private sector activity) data shows
that the recovery in periphery economies may offset the decline
in French production and suggests that the region is starting to
generate some positive momentum for growth," said Boris
Schlossberg, managing director for FX strategy at BK Asset
Management in New York.
    The euro was up 0.3 percent against the dollar at
$1.3355, not far from $1.3404, an 11-month high hit on Jan. 14
that is also acting as near-term resistance. Support was cited
at $1.3250, near lows touched on Jan. 11. 
    The euro was up 1.6 percent against the yen at
119.92 yen, inching towards a 20-month high of 120.73 yen hit on
Friday. Traders cited Asian central banks as main buyers of the
euro as they stepped up yen-selling. 
    Some analysts said the announcement on the size of next
week's first repayments of cheap three-year loans taken by banks
from the European Central Bank just over a year ago could give
the euro a bit of a lift.
    Banks took more than 1 trillion euros in the LTRO (long-term
refinancing operation) loans from the ECB. A Reuters poll showed
traders expected about 100 billion to be paid back next week.
 
    Option traders reported strong demand for euro calls - bets
that the euro will rise - for expiry on Friday.
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