CORRECTED-FOREX-Yen sags as G20 OK with Japan reflation effort

Sun Feb 17, 2013 7:05pm EST

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(Corrects GBP/AUD level in 11th para to A$1.5069 from A$1.0569)

* Japan escapes direct criticism from G20

* Yen softer across the board, downtrend intact

* Markets waiting for clues to next BOJ governor

By Ian Chua

SYDNEY, Feb 18 (Reuters) - The yen started a fresh week on the backfoot after Japan escaped direct criticism from its G20 peers on its aggressive reflationary plans that have weakened the currency and raised international complaints of competitive advantage.

The G20 declined to single out Tokyo but committed to refrain from competitive devaluations and said monetary policy would be directed only at price stability and growth. Japan said this has given it a green light to pursue its policies unchecked.

Traders also said this means the market will happily continue selling the yen.

The dollar rose to 93.90 yen, having bounced smartly from a low near 92.20 on Friday. It is within reach of a 33-month peak around 94.47 set a week ago. The euro is at 125.35 , also not far from a 34-month high of 127.71 reached early this month.

Yen bears had turned cautious last week, worried Japan would be openly criticised for allowing the yen to weaken. In the week ended Feb. 12, currency speculators cut bets against the yen, although they remained bearish on the currency.

"A lightly more nuanced tone in the G20 communique should reassure Japanese policymakers and the market by removing the risk of Japan being labelled as a currency manipulator," analysts at Barclays Capital wrote in a client note.

They said the yen's medium-term downward trend is intact and maintained their 12-month forecast of 100 for dollar/yen.

The market's focus is now on Prime Minister Shinzo Abe's nominee for the next Bank of Japan governor. Abe is expected to announce his choice in coming days.

Sources told Reuters that former top financial bureaucrat Toshiro Muto is leading the field of candidates to become the next central bank governor. It is expected that he would intensify stimulus efforts to reflate the economy.

Also notable was sterling, which squeezed higher across the board as some investors closed bearish positions even after a Bank of England policymaker said the currency may need to weaken further to rebalance Britain's economy.

The pound was at $1.5503, off a 6-1/2 month low around $1.5462 set Friday. Against the Australian dollar, it jumped to A$1.5069 from a six-month trough of A$1.4922.

In contrast, traders said position adjustments saw commodity currencies like the Australian dollar come under pressure. The Aussie fell back below $1.0300, from a 1-1/2 week high of $1.0375. It seemed to have carved out a new trading range roughly between $1.0230/0380.

The euro, meanwhile, was little changed at $1.3351, having found good support near $1.3310 on Friday. The low also represented the 38.2 percent retracement level of its Nov-Feb rally.

The single currency has fallen about 2.5 percent since peaking at a 15-month high of $1.3711 on Feb 1 as worries about the health of the euro zone economy weighed on sentiment. Last week, data showed the region slipped into a deeper recession than expected in the last three months of 2012.

With the G20 done and dusted, markets will again look to economic data for trading cues. There is little in the way of major data in Asia on Monday, apart from Thailand's fourth-quarter growth numbers. (Editing by Wayne Cole)

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