FOREX-Yen hits multiyear lows, weakness expected to continue

Mon Apr 8, 2013 12:11pm EDT

Related Topics

* Dollar near four-year high vs yen, poised to break 100 level

* BOJ begins buying longer-dated government bonds

* Euro shrugs off Portugal worry as Spain, Italy yields fall

By Wanfeng Zhou

NEW YORK, April 8 (Reuters) - The yen slumped near a four-year low against the dollar and a three-year trough against the euro on Monday after the Bank of Japan kicked off its aggressive monetary easing program in an attempt to beat persistent deflation.

The Japanese currency looked poised to extend its weakness, pushing the dollar above the significant 100 yen level as early as this week, analysts said. That would mark the weakest since April 2009 for the yen.

"Barring any sudden spike in risk aversion the pair is likely to roll through that level as momentum remains relentless for the time being," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York.

The BOJ conducted its first bond-buying operations on Monday, saying it would buy 1 trillion yen of government bonds with maturities between five and 10 years, and 200 billion yen of bonds with maturities exceeding 10 years. The BOJ promised last week to inject about $1.4 trillion into the economy in less than two years.

The dollar rose as high as 99.04 yen on Reuters data, the strongest level since May 2009, before pulling back slightly to trade at 98.96 yen, up 1.5 percent on the day.

Traders noted stops and option barriers at the psychologically important 100 level, and a break above could trigger further selling in the yen.

The dollar briefly fell against the yen on Friday after data showed weaker-than-expected growth in the U.S. labor market.

"The fleeting impact of the weak U.S. payrolls data shows a strong appetite to sell the yen and buy dollars. It has reinforced confidence that the yen weakening trend is intact," said Lee Hardman, currency economist at BTMU.

The euro climbed 1.5 percent to 128.63 yen, having risen as high as 128.83 yen, its highest since January 2010.

Analysts expect the flood of new money from the BOJ will be partly used by Japanese investors to buy higher-yielding assets abroad, putting further downward pressure on the yen.

JPMorgan analysts wrote in a client report that they had re-initiated a basket of yen shorts and were recommending the Australian dollar and Brazilian real as carry trades against the yen after the BOJ announced its stimulus plan.

The higher-yielding Australian dollar hit 102.88 yen , its highest since July 2008, before the collapse of Lehman Brothers.

Some traders cautioned it was unclear whether the yen would maintain this pace of weakening, with the dollar having gained more than 14 percent already this year, and its decline could be tempered by further evidence of a slowing U.S. economy.

Escalating tensions surrounding North Korea could hurt investor appetite for risk and prompt selling of higher-yielding currencies against the yen, analysts said.

Against the dollar, the euro gained 0.1 percent to $1.2999, shrugging off concerns about Portugal's ability to keep its bailout program on track after a constitutional court rejected some of the government's austerity measures. It had earlier risen to $1.3037, near a two-week high of $1.3039 set on Friday.

Worries about Portugal were offset by sharp falls in the borrowing costs of Spain and Italy due to demand for higher-yielding euro zone bonds from Asia after the BOJ plan.

Analysts said that although the euro would be overshadowed for now by moves in the yen, the outlook for the single currency was clouded by concerns about economic slowdown in the euro zone and speculation the European Central Bank could ease monetary policy.

"I am bearish on the euro. The economic situation has deteriorated and the ECB will be under a lot of pressure to become more adventurous," said Beat Siegenthaler, currency strategist at UBS, who forecast the euro would edge lower to $1.28 in three months' time.

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