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

Fri Apr 12, 2013 2:42pm EDT

Related Topics

* Dollar and euro fall from multi-year highs versus yen
    * U.S. retail sales unexpectedly fell in March, hits dollar
    * Yen heads for weekly losses, weakening trend intact
    * Cyprus said financing needs have risen

    By Julie Haviv
    NEW YORK, April 12 (Reuters) - The dollar plummeted from a
four-year peak against the yen on Friday after dismal data on
U.S. retail sales last month reinforced expectations the Federal
Reserve will continue buying bonds to support the U.S. economy.
    The yen's bounce, however, should prove to be temporary
given the Bank of Japan's aggressive monetary easing to fight
decades-long deflation. Most market experts contend it's only a
matter of time before the dollar rises above the 100-yen mark, a
key psychological and technical level.
    The dollar succumbed to selling pressure after data showed 
U.S. retail sales fell 0.4 percent in March,  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.
    Separate data on Friday showed U.S. consumer sentiment
tumbled in April.
    The Fed's bond-buying program is tantamount to printing
money and dilutes the value of the dollar. Minutes from recent
Fed meetings suggested some policymakers expected to taper the
pace of asset purchases sometime this year.
    Nevertheless, those meetings occurred before the release of
March jobs data earlier this month, which showed tepid gains in
payrolls. The Fed has said it will continue buying bonds until
the labor market shows substantial improvement. 
    The dollar last traded at 98.98 yen, down 0.7 percent
and far below the session high of 99.80 yen, according to
Reuters data. The dollar reached a high of 99.94 on Thursday,
the strongest since April 2009.
    On the week, the dollar was up about 0.8 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 last week pledged 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 in the next 12 months.
    The euro last traded at 129.54 yen, down 0.8
percent and far below 131.11 yen set on Thursday, which marked
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 at $1.3086, down 0.1
percent, weighed by 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.
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