FOREX-Yen rebounds as Japan plays down foreign bond buying talk

Tue Feb 19, 2013 1:39am EST

Related Topics

* Aso says not considering foreign bond buying

* Dollar/yen failure to clear 33-month high points to solid resistance

* Uncertainty on next BOJ governor may curtail yen selling

* Euro soft after Draghi repeats wariness over appreciation

* Dollar/yen down 0.4 pct

By Hideyuki Sano

TOKYO, Feb 19 (Reuters) - The yen rose on Tuesday after Japanese ministers played down talk of foreign bond buying by the country's central bank, a day after Prime Minister Shinzo Abe said such a policy could be one option for monetary easing.

Finance Minister Taro Aso told a news conference that he was not considering foreign bond purchases as a part of monetary easing, while Economy Minister Akira Amari said Abe's comments on Monday simply referred to policy options countries have in general.

Their comments sent down the dollar to 93.61 yen, 0.4 percent below its late European session levels. U.S. financial markets were closed on Monday for the President's Day holiday.

"The dollar/yen may have entered a period of consolidation after a long rally. Japanese ministers appeared to be toning it down these days. Before they said excessive strength in the yen is being corrected. Now they don't say anything," said Katsunori Kitakura, associate director of market-making at Sumitomo Mitsui Trust Bank.

Abe declined to comment on currencies on Tuesday while Aso has not made any direct comments on the yen after the weekend meeting of G20 policymakers in Moscow.

While yen sentiment is weak, the dollar has hesitated so far to re-test a 33-month high of 94.47 yen set last week, with option players selling by to hedge their barrier option positions at 94.50 yen.

"The fact that the dollar/yen couldn't break above last week's high yesterday points to the strength of the resistance," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

Since mid-November, the dollar has risen almost 20 percent on expectations the Bank of Japan will take aggressive monetary easing steps to shore up the economy.

Some strategists said the yen's fall could lose momentum for now as investors became wary of betting on further yen weakness until there is more clarity on the next Bank of Japan governor.

Economy Minister Amari said on Tuesday the government will decide on Bank of Japan's new governor and two deputy governors after Prime Minister Abe returns from a trip to the United States on Feb. 21-24.

Sources told Reuters that former top financial bureaucrat Toshiro Muto is the leading candidate to become Japan's next central bank governor, replacing Masaaki Shirakawa.

HUNG PARLIAMENT

The euro licked its wounds near a three-week low against the dollar after European Central Bank President Mario Draghi reiterated his wariness about the currency's appreciation.

The euro stood at $1.3343, little changed from late European levels and a tad above a three-week low of $1.3306 hit last Friday.

Speaking at the European Parliament, Draghi told EU lawmakers the euro exchange rate was not a policy target but was important for growth and stability, adding that appreciation of the euro "is a risk".

The euro has been under selling pressure in the wake of data recently revealing a deeper-than-forecast euro zone recession adding to concerns about the outcome of elections in Italy at the weekend, with Prime Minster Mario Monti's economic reforms drawing criticism from across the political spectrum.

"Should the election lead to a hung parliament and raise doubts about whether Italy will pursue Monti's reform policy, that would give speculators such an easy chance to sell the euro," said Seiya Nakajima, chief economist at Itochu Corp.

The euro dipped 0.3 percent to 125.00 yen. The common currency has lost a bit of momentum after hitting a 34-month high of 127.71 yen earlier this month, having gained almost 27 percent since mid-November at that point.

An immediate focus for the currency is the German economic sentiment index due at 11:00 a.m. (1000 GMT). Economists expect the ZEW index to improve to a 2-1/2-year high..

As the euro wilted, the dollar index held firm near a six-week high of 80.727 hit on Monday. It last stood at 80.653 but faces resistance from its 200-day moving average at 80.940.

The British pound was listless near a seven-month low of $1.5438 on Monday after a comment from Bank of England policy maker that the currency may need to fall further. It last stood flat at $1.5473.

Sterling is also coming under pressure from recent poor data that has prompted worries of another British recession, as well as speculation that incoming BoE chief Mark Carney may take drastic easing steps akin to the policies that Japan's government is pressuring the Bank of Japan to adopt.

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