FOREX-Dollar slips against yen after U.S. retail sales

Fri Apr 12, 2013 9:46am EDT

Related Topics

* Dollar, euro fall from multi-year highs versus yen
    * U.S. retail sales unexpectedly fall in March, hits dollar
    * Yen heads for weekly losses, weakness trend intact

    By Wanfeng Zhou
    NEW YORK, April 12 (Reuters) - The dollar declined from a
four-year peak against the yen on Friday after an unexpected
fall in U.S. retail sales last month reinforced expectations the
Federal Reserve will keep its monetary policy loose to support
the U.S. economy.
    But any rebound in the yen should be short-lived after the
Bank of Japan unveiled aggressive monetary easing last week to
fight decades-long deflation. Traders said it's only a matter of
time before the dollar rises above the 100 yen mark.
    U.S. retail sales fell 0.4 percent in March, the Commerce
Department said, contracting for the second time in three months
and a sign the American economy may have stumbled at the end of
the first quarter. 
    "It is the latest in a growing list of economic numbers that
will likely keep the dollar pressured and the Fed in no hurry to
normalize policy," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington.
    The Fed's bond-buying program, which equates to printing
money, has been a major headwind for the dollar in recent years.
But minutes from recent Fed meetings suggested some Fed
policymakers expected to taper the pace of asset purchases
sometime this year.
    The dollar fell 0.6 percent to 99.05 yen. It had
earlier risen to a session peak of 99.80 yen, near a high of
99.94 set on Thursday, the strongest since April 2009.
    On the week, the dollar rose about 0.9 percent against the
yen, its second straight week of gains. It was on track for its
largest two-week gain versus the yen since early 2009. 
    The dollar had gained 7 percent against the yen since the
BOJ pledged Thursday to inject about $1.4 trillion into the
Japanese economy in less than two years. 
    But its rally has slowed near the psychologically important
100 level, with traders citing hefty option barriers and dollar
selling pressure from Japanese exporters.
    "There is a correction taking place in the wider yen selloff
that we have seen," said Chris Walker, currency strategist at
Barclays. "But drops in the dollar/yen have been shallow and are
good levels to short the yen. We forecast dollar/yen to rise to
103 yen in a month's time."
    The BOJ's steps have prompted many analysts to revise up
their forecasts for the dollar's strength against the yen.
Societe Generale analysts now target an eventual rise to 110, up
from 103 previously, while Bank of Tokyo Mitsubishi UFJ
forecasts dollar/yen at 109 yen in the next 12 months.
    The euro slipped 0.7 percent to 129.65 yen,
retreating from 131.11 yen set on Thursday, its highest in more
than three years.
    
    CAPITAL FLOWS
    On Friday BOJ Governor Haruhiko Kuroda said he had taken all
necessary steps to meet its 2 percent inflation target in two
years and will try to minimize volatility in the Japanese
government bond (JGB) market caused by its massive bond buying.
 
    Fund managers and analysts say once the volatility in the
bond market settles, Japanese investors are likely to reallocate
money overseas in search of higher yields.
    "With the BoJ now a major buyer of JGBs, expectations are
that Japanese investors in JGB's - mainly banks, insurance
companies and pension funds - will start to allocate part of
their money to foreign assets," said Jaco Rouw, fund manager at
ING Investment Management. 
    "This might partly be on an unhedged basis if the BOJ
successfully creates expectations of a weaker yen. As almost all
yen weakness so far has been driven by the international
financial community, this Japanese flow should be the next leg
of further yen depreciation."
    The data shows no such flow yet but analysts expect that may
change quickly. 
    Against the dollar, the euro was down 0.2 percent at $1.3075
. Reported option expiries around $1.3000 could likely
keep the currency pinned around that level.
    Strategists said markets will focus on a meeting of European
Union finance ministers starting later on Friday, expected to
approve a 10 billion euro bailout package for Cyprus.
  
    Ministers will also likely discuss revisions to the terms
and conditions of bailouts for Portugal and Ireland.
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