FOREX-Yen slumps broadly as official says weakness not over

Thu Jan 24, 2013 2:10pm EST

Related Topics

* Japanese official says yen decline not over
    * Record trade deficit for Japan adds to selling pressure
    * German data boosts hopes euro zone economy stabilizing

    By Wanfeng Zhou
    NEW YORK, Jan 24 (Reuters) - The yen tumbled against the
dollar on Thursday, snapping a three-day advance, after a
Japanese economic official said the government has no problem
with the dollar hitting 100 yen.
    The Japanese currency has weakened to about 90 per dollar
from 80 since November on expectations Prime Minister Shinzo Abe
will force the central bank to ease monetary policy to combat
deflation.
    But its decline stalled earlier this week after the Bank of
Japan said its open-ended commitment to buy assets would kick in
only next year, disappointing investors who had expected for
more aggressive easing measures.
    "That disappointment only opened the door for bargain
hunters who are now driving yen crosses up again due to the fact
that Abenomics is still in play, and it will likely continue,"
said Neal Gilbert, market strategist at GFT in Grand Rapids,
Michigan.
    "Prime Minister Shinzo Abe and his cabinet members are now
aiming for 100.00 on the dollar/yen and we can expect more
verbal, political and monetary rhetoric until that goal is
reached."
    The dollar rose 1.5 percent to 89.87 yen, a day after
hitting a one-week low of 88.03 yen. It had earlier risen as
high as 90.14 yen, breaking above resistance at 90 and is on
track to hit 90.25 yen, the 2-1/2-year high hit on Monday.
    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. 
    "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," said Bob Lynch, chief currency strategist at HSBC in New
York. 
    A record trade deficit for Japan and 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 added
to selling pressure. 
    The euro rallied 1.8 percent to 120.17 yen,
inching toward a 20-month high of 120.73 yen hit on Friday.
Traders cited Asian central banks as major buyers of the euro as
they stepped up yen selling. 
    Against the dollar, the euro rose 0.4 percent to $1.3367
, not far from the 11-month high of $1.3403 hit on Jan.
14, which is acting as near-term resistance. Support was cited
at $1.3250, near lows touched on Jan. 11. 
    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," said Aroop Chatterjee, currency
strategist at Barclays Capital in New York. "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.
    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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