FOREX-Yen tumbles on Japanese official's comment; euro firmer

Thu Jan 24, 2013 12:08pm EST

Related Topics

* Japanese official says yen decline not over
    * Japan posts record trade deficit for 2012
    * Sentiment on euro zone assets improving

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 24 (Reuters) - The yen slumped across the
board on Thursday after three days of gains, after a Japanese
economic official said the government has no problem with the
dollar hitting 100 yen and after Japan reported a record trade
deficit.
    The euro 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.
Nishimura was also quoted saying 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 jaw-boning 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 1.6 percent at 89.99 yen, a
day after hitting a one-week low of 88.06 yen. The greenback
climbed past the resistance point of 90 yen and could possibly
reach 90.25 yen, the 2-1/2-year high hit on Monday.
    Comments by Japanese Prime Minister Shinzo Abe that he
expected the Bank of Japan to achieve its 2 percent inflation
goal as soon as possible drove another nail into the yen. 
 
    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. 
    The yen had rebounded earlier this week after the BoJ 
disappointed investors who were expecting an immediate increase
in its asset-purchasing program. Still, the BoJ delivered its
most aggressive policy easing yet to snap the economy out of
years of stagnation. 
    "Yen selling will persist for some time. Even though the BoJ
disappointed investors with their easing steps, if they do as
they say, then it will result in a weaker yen," said Aroop
Chatterjee, currency strategist at Barclays Capital in New York.

    EURO GAINS
    The euro saw choppy trade after 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. 
    "The better PMI reading suggests a euro zone economy that is
starting to stabilize," Barclays' Chatterjee said. "It's not out
of the woods yet, but the economic and financial conditions are
certainly better now than last 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 euro was up 0.4 percent against the dollar at
$1.3374, not far from the 11-month high of $1.3404 hit on Jan.
14, which is also acting as near-term resistance. Support was
cited at $1.3250, near lows touched on Jan. 11. 
    The euro was up 2 percent against the yen at
120.36 yen, inching toward 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 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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