FOREX-Yen under renewed pressure as gold jitters ease

Wed Apr 17, 2013 12:31am EDT

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* Yen down broadly as demand fades

* Steadier gold, after historic plunge, soothe jitters

By Masayuki Kitano and Ian Chua

SINGAPORE/SYDNEY, April 17 (Reuters) - The yen fell broadly on Wednesday, succumbing to renewed pressure after gold prices steadied somewhat from an eye-watering plunge earlier in the week.

The dollar was changing hands at about 98.14 yen, up 0.6 percent from late U.S. trade on Tuesday. It was still down about 1.8 percent from a four-year high of 99.95 yen set last week.

The euro climbed 0.6 percent to 129.29 yen, although it still remained some way off a three-year peak of 131.10 yen hit last week.

A historic plunge in gold prices on Monday, coupled with concerns about China's economic growth had sapped risk sentiment and given a lift to the yen earlier this week, reversing a tide of selling sparked by the Bank of Japan's aggressive stimulus programme.

"We still believe that the recent volatility in the commodity prices was mainly driven by long position liquidation, while the underlying backdrop remains risk-positive due to expanding global monetary easing," said Vassili Serebriakov, strategist at BNP Paribas.

"Overall, we expect the focus to gradually shift back to JPY which remains the key driver of FX markets. We see renewed USD/JPY gains driven by Japanese investor outflows, targeting USD/JPY at 105 by year-end."

A focal point is whether Japanese investors will eventually look overseas for higher returns as the Bank of Japan injects about $1.4 trillion into the economy in two years as part of a dramatic plan to jump start growth.

"We expect significant outflows of capital from Japan and increased use of the yen as a funding currency," said Mitul Kotecha, Hong Kong-based head of foreign exchange strategy for Credit Agricole.

"We're forecasting 104 for dollar/yen by the end of the year," he said.

G20 MEETING

In the near-term, the market will be focused on the Group of 20 meeting beginning on Thursday in Washington, where finance ministers and central bankers from the world's leading economies will discuss the economic and financial market outlook, including the Cyprus crisis and asset price reactions.

It seems unlikely that Japan will face any significant criticism over the Bank of Japan's aggressive monetary easing at the G20 meeting, said Credit Agriole's Kotecha.

"Although there may be some warnings about not focusing on exchange rate levels, etc. I don't think there is going to be anything categoric to put pressure on Japan to change its monetary policy," Kotecha said.

A senior Canadian financial official said on Tuesday that Canada was supportive of Japan's effort to kick-start its economy and that the G20 believed policy should target domestic economies and not exchange rates.

Separately, a U.S. official said on Tuesday that ways to boost global demand to help the faltering recovery will be a key focus for the United States at the G20 meeting.

Asked about competitive devaluations and the impact of Japan's aggressive monetary policy on the yen, the U.S. official said the United States will be watching closely to see how effective the policies are at boosting Japanese demand.

The euro held steady against the dollar at $1.3174, after having hit a seven-week high of $1.3202 on Tuesday, partly helped by its bounce versus the yen.

The single currency had added to its gains on Tuesday after breaching resistance at its 100-day moving average at roughly $1.3155, a level which could now act as support for the euro.

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