FOREX-Dollar's ascent versus yen pauses but trend intact

Thu Apr 11, 2013 4:11am EDT

Related Topics

* Dollar stalls near 100 yen due hefty offers at the big number

* Fed minutes fan QE exit speculation, support dollar

* BOJ ultra-loose policy will keep yen weak

By Anirban Nag

LONDON, April 11 (Reuters) - The dollar paused for breath on Thursday before an expected assault on the 100 yen level with expectations the Federal Reserve may slow its bond-buying adding to the impetus towards dollar strength.

While the U.S. currency pulled back slightly from a four-year against the yen struck on Wednesday, as investors took profit after a 7 percent surge since the Bank of Japan unveiled a $1.4 trillion stimulus plan last week, analysts said it was only a matter of time before 100 yen was broken.

Expectations the Fed would cut back on its bond-buying programme were reinforced by the minutes of the U.S. central bank's March meeting.

That contrasted with the stance of BOJ Governor Haruhiko Kuroda, who signalled he was ready to offer further stimulus or maintain an ultra-easy policy beyond two years if it proved difficult to meet the bank's 2-percent inflation target.

"The Fed minutes were a bit more hawkish than most were expecting," said Peter Kinsella, currency strategist at Commerzbank. "But the market has run a bit ahead of itself with the yen weakness theme. Also, there are option barriers at 100 yen which will see the dollar grind higher rather than a quick and sharp move up."

The dollar was down 0.15 percent on the day at 99.65 yen , off a four-year high of 99.88 yen.

Traders cited hefty offers to sell dollars at 100 yen from Japanese exporters. However, they added most investors were looking to use dips to add to long dollar positions.

"There is quite a lot of profit-taking after a sharp rally. But the dollar didn't fall much, which seems to me a hallmark of the strength of this market," said a trader at a European bank.

A rise above 100 yen would take the U.S. currency to highs not seen since mid-April 2009 and pave the way for a test of the April 2009 peak of 101.45 yen.

JAPANESE OUTFLOWS

Yen weakness is partly being driven by expectations the BOJ's ultra-loose policy will drive Japanese investors to riskier and higher-yielding foreign assets.

So far, there is little evidence of that happening. Data from Japan's Ministry of Finance showed Japanese investors sold a net 1.145 trillion yen ($11.5 billion) worth of foreign bonds last week, the biggest selling in a year.

Many expect yield-hungry Japanese investors to buy U.S. Treasuries in coming months, especially if expectations that the Fed may withdraw some of its stimulus gather pace.

The Fed minutes, which officials said were inadvertently released hours ahead of schedule, showed a few policymakers expected to taper the pace of asset purchases by mid-year and end them later this year. Several others expected to slow the pace later and halt the quantitative easing programme by year-end.

While the minutes were described by some analysts as a bit more hawkish than expected, others discounted them because they did not reflect a dismal March payrolls report released after the meeting.

The euro was up 0.1 percent against the dollar at $1.3080 , but well below Wednesday's one-month high of $1.3122. The single currency fetched 130.38 yen,, having touched a three-year high of 130.57 on Wedenesday.

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