FOREX-Yen plummets to 3-1/2 year low after BOJ's radical stimulus

Thu Apr 4, 2013 11:20pm EDT

Related Topics

* Dollar/yen hits highest since August 2009
    * BOJ pledges to pump $1.4 trillion into economy
    * Euro steady after falling to 4-1/2 yr low on Thursday

    By Sophie Knight
    TOKYO, April 5 (Reuters) - The yen slid to a 3-1/2 year low
against the dollar on Friday, after suffering its biggest
one-day tumble since late 2008 on Thursday, when the Bank of
Japan surprised markets with a radical campaign of monetary
expansion to attack deflation.
    The dollar rose as high as 97.20 yen on trading platform
EBS, a level not seen since August 2009. It last stood at 97.13
yen, up 0.8 percent on the day.     
    The greenback soared 3.6 percent against the yen on Thursday
 after the BOJ unleashed the intense monetary stimulus,
promising to inject about $1.4 trillion into the economy in less
than two years, a gamble that sent bond yields to record lows as
prices rose on the prospect of massive BOJ
bond-buying. 
    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.  
    "They've committed to expanding the monetary base at quite a
significant pace, which has had a very big impact on the
market," said Bill Diviney, currency strategist at Barclays
Capital in Tokyo.
    The yen continued to lose ground across the board. Against
the euro, it slipped 0.6 percent to a three-week low of 125.61
yen. The common currency jumped 4.3 percent on
Thursday, its biggest one-day rise against the yen since
November 2008. 
    The euro breezed into the 125-125.50 yen range, but faces
some resistance before the 126 level and is some way off from a
high of 127.71 yen hit on Feb.6, according to the EBS platform.
    Analysts says European bonds could benefit as the Japanese
yield curve has already flattened on expectations of the BOJ
purchasing long-dated Japanese government debt, which could
pique domestic investors' hunger for higher yields abroad.
    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.
    "Domestic investors are likely to be encouraged by the BOJ's
promise to stay accommodative for quite some time," said Diviney
of Barclays, adding that he expected U.S. assets to see the most
significant boost from Japanese investors' forays abroad.
    Domestic retail investors have already begun sniffing out
riskier assets. Subscriptions for an emerging markets equities
fund launched last week for assets in countries such as Turkey,
Indonesia and Thailand reached nearly $1.6 billion, the highest
for a single launch since December.
    Analysts say that the dollar has space to run higher against
the yen now that it has regained a foothold above the 96 yen
level. 
    Barclays foresees the dollar firming to 103 yen in the
coming weeks, while Societe Generale sees that level as a
long-term target that should be reached by the first quarter of
2014.
    " stay bearish yen for now. External forces, namely
softer US data and euro area-led deterioration of risk
conditions this spring, may well temper the JPY sell-off in Q2,"
said a Societe Generale report. 
    
    U.S. DATA
    Some investors remained cautious in the near-term as they
awaited the U.S. nonfarm payrolls report later on Friday, as a
disappointing result could keep U.S. bond yields depressed and
add to expectations of more bond-buying from the Federal
Reserve, which would weigh on the dollar.
    Data showing weaker-than-expected growth in the U.S.
private-sector employment and initial jobless claims at
four-month highs last week has led to worries that the labour
market is losing momentum. 
    However, some say that market expectations have already been
adjusted.
    "Weak employment data this week means a disappointing
payroll report has been priced in. However, that makes a
reaction to a positive surprise more likely," said Junya Tanase,
executive director of FX research at JPMorgan in Tokyo.
    Against the dollar, the euro slipped 0.1 percent to 1.2926
 after a sharp reversal on Thursday. The common currency
moved from a 4-1/2 month low around $1.2745 as investors pared
back their bearish bets against the single currency, prompting
it to rise 0.7 percent by late U.S. trade. 
    European Central Bank President Mario Draghi said on
Thursday 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.
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