FOREX-Euro, dollar soar vs yen as BOJ eases policy aggressively

Thu Apr 4, 2013 12:42pm EDT

Related Topics

* Dollar, euro on pace for best day vs yen since 2008
    * BOJ pledges to pump $1.4 trillion into economy
    * ECB's Draghi says "ready to act," Cyprus no template

    By Wanfeng Zhou and Gertrude Chavez-Dreyfuss
    NEW YORK, April 4 (Reuters) - The dollar and euro soared
more than 3 percent against the yen on Thursday in their biggest
one-day moves since 2008 after the Bank of Japan announced a
level of monetary easing to fight deflation that was seen as a
radical overhaul of policy.
    The BOJ pledged to inject about $1.4 trillion into the
economy in less than two years. Governor Haruhiko Kuroda,
chairing his first policy meeting, committed the BOJ to
open-ended asset buying and said the monetary base would nearly
double to 270 trillion yen ($2.9 trillion) by the end of 2014.
 
    "This is not your grandfather's BOJ," said Boris
Schlossberg, managing director of FX Strategy at BK Asset
Management in New York. 
    "The fact that they came out, doubled the size of the QE and
are willing to do all these non-conventional measures suggested
that they really want to take dollar/yen to 100," said Boris
Schlossberg, managing director of FX Strategy at BK Asset
Management in New York.
    The dollar rose as high as 96.41 yen on Reuters data,
near a 3-1/2-year peak of 96.71 set on March 12. It was last
trading at 96.14 yen, up 3.3 percent on the day and on track for
its best day since October 2008.
    The euro soared 3.5 percent to 123.68 yen, the
biggest one-day move since November, 2008. It had earlier
climbed to 123.93 yen on Reuters data.
    In the near term, analysts said whether the yen will extend
its declines will depend on the U.S. nonfarm payrolls report,
due on Friday. Employers likely added 200,000 jobs to their
payrolls last month and the unemployment rate is seen steady at
a four-year low of 7.7 percent, according to a Reuters poll.
    A disappointing reading could keep U.S. bond yields
depressed and add to expectations of more bond-buying from the
Federal Reserve, which would pressure the dollar against the
yen.
    Data showing weaker-than-expected growth in U.S.
private-sector employment and initial jobless claims at
four-month highs last week has fueled worries the labor market
is losing momentum. 
    The euro was little changed versus the dollar in choppy
trade after European Central Bank President Mario Draghi said
the bank stood ready to act if growth continues to languish. He
also affirmed his commitment to keeping the euro zone intact and
said the Cyprus bailout was not a "template" for future rescues
in the currency zone. 
    The euro was last flat at $1.2855. It had earlier
dropped to $1.2745, its lowest in more than four months, as
Draghi highlighted the downside risks to the euro zone economy,
suggesting the bank could further slash interest rates.
    
    FURTHER YEN WEAKNESS    
    Traders said the yen's falls were magnified because the
market had prepared for the BOJ to deliver less than expected,
as it had done in the past.
    The BoJ shocked markets in what was seen as a radical
overhaul of policymaking, shifting the policy target to the
monetary base from the overnight call rate and ditching its
previous stance of shunning long-term bonds. 
    The BOJ's new plan means it will buy about 7 trillion yen
($73 billion) of bonds per month, equivalent to about 1.4
percent of gross domestic product. By comparison, the U.S.
Federal Reserve is buying $85 billion of bonds per month - about
0.6 percent the size of the economy.
    The yen extended losses as Kuroda said he would not hesitate
to adjust policy further. 
    Market players said Japanese institutional investors were
also likely to increase overseas investments, which could
trigger the next leg in yen weakness.
    The yen also weakened against other currencies, with the
Australian dollar rising above 100 yen for the first time since
2008.
    Nomura Securities said given the weaker U.S. growth momentum
lately, the dollar may not be the best currency to express yen
weakness.
    Instead, the firm said it's buying the Australian dollar
against the yen, targeting a move to 105 in two to three months.
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