FOREX-Dollar retreats from four-year peak vs yen after U.S. data

Fri Apr 12, 2013 12:10pm EDT

Related Topics

* Euro falls from multi-year high versus yen
    * U.S. retail sales unexpectedly fell in March, hits dollar
    * Yen heads for weekly losses, weakening 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 monetary policy loose to support the
U.S. economy.
    Even so, any rebound in the yen is expected to be
short-lived following the Bank of Japan's announcement last week
of  aggressive monetary easing 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
in 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.
    Separate data on Friday showed U.S. consumer sentiment
tumbled in April. 
    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 policymakers
expected to taper the pace of asset purchases sometime this
year.
    The dollar fell 0.8 percent against the yen to 98.87 yen
. It had earlier risen as high as 99.80 yen, near a high
of 99.94 on Reuters data on Thursday, the strongest since April
2009.
    On the week, the dollar was up about 0.7 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 about 6 percent against the yen since
the BoJ pledged last week to inject about $1.4 trillion into the
Japanese economy in less than two years. But the 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 0.8 percent to 129.49 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 the central bank's 2 percent inflation
target in two years and will try to minimize volatility in the
Japanese government bond (JGB) market caused by the massive bond
buying program. 
    Fund managers and analysts say that 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 0.1 percent at $1.3091
, weighed down concerns about Cyprus. Reported option
expiries around $1.3000 could likely keep the currency pinned
around that level.
    Cyprus said its financing needs under its international
bailout have risen to around 23 billion euros, from 17.5 billion
euros originally, because its deteriorating economy will depress
its revenues. It said the increase would not lead to additional
demands on bank depositors.
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