FOREX-Yen slumps to 33-month low, euro rebounds

Tue Feb 5, 2013 11:03pm EST

Related Topics

* Yen pressured after BOJ governor to step down early

* More dovish BOJ governor is expected

* Euro bounces off lows, shrugs off French call for FX target

* Dollar/yen up 0.1 pct after hitting high near Y94

* Aussie down 0.3 pct after soft retail sales data

By Hideyuki Sano and Ian Chua

TOKYO/SYDNEY, Feb 6 (Reuters) - The yen slumped to a 33-month low against the dollar and the euro on Wednesday as investors piled back into the easy one-way trade on the view that a more dovish Bank of Japan governor will soon be installed to push through aggressive easing measures.

The euro resumed its uptrend despite a call from French President Francois Hollande to protect the currency from irrational movements, while the Australian dollar dropped to a six-week low after soft Australian retail sales data.

The Japanese currency came under renewed pressure after BOJ governor Masaaki Shirakawa on Tuesday announced he will step down on March 19, three weeks before his five-year term ends in April.

Prime Minister Shinzo Abe, who has put the BOJ under intense pressure to do more to spur the economy, has made it abundantly clear he wants a governor who will be bolder than the outgoing BOJ chief in loosening monetary policy. Abe is expected to name Shirakawa's successor later this month.

Despite sporadic complaints from some governments such as Germany and South Korea, Abe's support for aggressive easing does not seem to have irked many other countries, making yen selling comfortable, said Minori Uchida, chief currency strategist at the Bank of Tokyo-Mitsubishi UFJ.

"The G20 finance ministers meeting next week is unlikely to discuss currencies much. The market is likely to test further downside on the yen in the near future," Uchida said.

On Wednesday the dollar and the euro both surged to fresh 33-month high at 93.91 yen and 127.63 respectively, steadily moving towards their 2010 peaks around 94.99 and 134.37.

The dollar last traded at 93.77 yen, up 0.1 percent from late U.S. levels while the euro fetched 127.40 yen, also a gain of 0.1 percent during the day.

The single currency also held the upper hand against the dollar. It last stood at $1.3585, flat from late U.S. levels but up sharply from a one-week low of $1.3458 hit on Tuesday.

Spanish and Italian bonds rebounded on Tuesday after a steep selloff in the previous session, easing fears that political uncertainties in these countries could derail the euro zone's efforts to contain its debt crisis.

Also helping to turn the euro higher was a survey on Tuesday showing the euro zone's economy is probably recovering even though it also showed the gulf between the two biggest members has widened, a development that will no doubt worry policymakers.

As the French economy struggles, President Hollande urged the euro zone to set a mid-term target for its currency's exchange rate.

But the market shrugged it off as the idea that appeared to have little support, with Germany opposing intervening on currency markets and

Euro bulls had turned cautious earlier in the week, worried that the European Central Bank might do or say something to weaken the single currency at Thursday's policy meeting.

While the ECB has been relatively upbeat about the outlook for the euro zone, a strengthening euro is unwelcome in a region still largely mired in recession.

"I would like to see how the ECB will change its tone after perhaps it became too bullish in January," said Mitsubishi Bank's Uchida.

Elsewhere, the Aussie crumbled to a six-week low of $1.0345 after weak local retail sales strengthened the case of further interest rate cuts this year. The last cut was in December.

It last traded at $1.0354,, down 0.3 percent from late U.S. trade.

Sterling saw only partial relief ahead of the Bank of England's own policy meeting on Thursday after having fallen to a fresh 5-1/2 month low of $1.5630 on Tuesday.

Concerns about the economy prompted some marginal talk that the central bank could opt for further quantitative easing to stimulate growth.

The consensus forecast, however, is for the BOE to stand pat. The market is also keenly waiting to hear what incoming BOE Governor Mark Carney says when testifying before a parliamentary committee on Thursday.

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