FOREX-Yen slumps as G20 meeting weighs; euro falls vs dollar
* Yen hits 2-week low against euro, 1-week low vs dollar
* Russia says G20 communique won't single out Japan on forex
* BOJ nominees awaited, less radical Muto seen front runner
* Dollar gains vs yen accelerate after U.S. data
By Julie Haviv
NEW YORK, Feb 15 (Reuters) - The yen slumped against the euro and dollar on Friday as investors piled on bearish bets amid uncertainty about a G20 summit in Moscow and questions about who may be the next leader of Japan's central bank.
G20 officials struggled to find common ground on currency manipulation at a summit which looked likely to be dominated by the ultra-loose monetary polices of major developed countries, including Japan and the United States and whether they depart from the group's commitment to market-driven exchange rates.
A draft communique prepared for Group of 20 finance leaders omits part of this week's Group of Seven statement declaring fiscal and monetary policy may only be used for domestic economic aims, a G20 delegate said on Friday.
The United States is acting in line with the position of the Group of Seven nations by using domestic policy tools to boost growth and reduce unemployment, Federal Reserve Chairman Ben Bernanke said on Friday.
The possibility of officials expressing disapproval of Japan's policy in particular has encouraged investors to take profit on the yen's recent sharp falls, which followed government pressure on the BOJ to ease policy to help beat deflation.
Sources told Reuters that former top financial bureaucrat Toshiro Muto was the frontrunner to become the next BOJ governor.
Muto is seen as likely to pursue slightly less radical stimulus measures than some of the other contenders. A decision could come in the next few days, the sources said.
The euro last traded up 0.6 percent at 124.78 yen, after earlier falling to 122.87 yen, its lowest since Jan. 30. It hit a 34-month high of around 127.71 last week.
"While the G20 Draft urges members to avoid competitive devaluations it seemingly approves of the rebalancing that has occurred in the European and Japanese currencies," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.
"This news should give further support to the upward move in euro/yen," he said. "With the IMF's (International Monetary Fund) Lagarde's blessing, the long euro/yen trade looks set to continue higher.
"As with all G20 meetings, the pace of rebalancing - euro higher and yen lower - is key to keeping all members content," he said.
The euro also remained under pressure a day after figures showed the euro zone sinking more deeply into recession than forecast. The grim picture is likely to keep expectations of a interest rate cut by the European Central Bank alive.
Euro zone money market rates are also likely to ease in coming weeks, keeping the euro well off its recent highs above $1.37 struck on Feb 1.
The euro last traded down 0.1 percent at $1.3352, with traders saying stop loss orders were triggered on the drop below $1.3320.
ECB chief Mario Draghi criticized on Friday recent "chatter" on currencies and said the euro's exchange rate was in line with long-term averages. Like ECB policymaker Jens Weidmann, who spoke earlier, Draghi resisted pressure from some euro zone politicians to target the euro's exchange rate on the grounds it is overvalued.
The dollar extended gains against the Japanese yen and pared gains versus the euro after U.S. data showed manufacturing in New York state expanded in February for the first time in seven months.
The dollar last traded at 92.42 yen, up 0.6 percent, after hitting a one-week low of 92.21 yen. It had set a 33-month high of 94.465 on Monday and solid chart support was expected at 92.00 yen.
Speculation over what, if anything, G20 officials might say about Japan has been swirling all week.
Russia's finance "sherpa", Deputy Finance Minister Sergei Storchak, said the drafting discussion was proving "difficult", but the final text would not single out Japan for criticism. . That could see yen selling resume.
"The long term weakening trend for the yen remains intact," said Howard Jones, adviser at money managers RMG Wealth Management. "We are comfortable with our view the dollar will rise to 100 yen in the coming months. It is an easy trade to make money," he said