FOREX-Dollar nears key 100 yen level after G20

Mon Apr 22, 2013 9:55am EDT

Related Topics

* Dollar/yen advances towards 100 mark

* G20 does not criticise Japan's radical easing policy

* Euro eases towards bottom of recent range vs dollar

By Toni Vorobyova and Luciana Lopez

LONDON/NEW YORK, April 22 (Reuters) - The yen hovered near the key level of 100 to the dollar on Monday after major industrialized nations gave their stamp of approval to a massive Japanese easing program that has weakened the currency.

Japanese officials said that the Group of 20 nations accepted that the country's $1.4 trillion stimulus program is aimed at conquering 15 years of deflation rather than at weakening the yen.

In response, the dollar climbed as high as 99.90 yen, within striking distance of a four-year high of 99.95 set on April 11 and the 100 level, where option barriers are said to be lined up. At 1338 GMT, it was at 99.49 yen, nearly flat from the previous session.

"The lack of pushback by the G20 effectively gives the BOJ room to ease further if needed and should keep the yen biased broadly lower," said Omer Esiner, chief market analyst with Commonwealth Foreign Exchange, Inc, in Washington, DC.

A break of 100 could trigger stop-loss buying, which could take the pair up to 101.45 yen, an April 2009 high which could act as near-term resistance. Reported large option expiries at 100 will keep the currency pinned to that level.

"The rally in dollar/yen has, as far as we can see, been driven by layer upon layer of leveraged short yen positions being built up," said Adam Cole, global head of FX strategy at RBC Capital Markets, who sees the yen staying at around the 100 mark a month from now.

"To make it (a break of 100) sustainable, you need to see strong evidence that Japanese investors are buying rather than selling overseas assets, or you need to see a shift in hedging behavior ... But at the moment we don't see that from capital flows data."

One-month implied volatility on dollar/yen jumped as high as 14.415, a level not seen in two years, underscoring increased demand for options to protect against yen weakness.

Data on Friday showed currency speculators raised their bets against the yen in the week ended April 16, while lifting positions in favor of the U.S. dollar.

The yen has weakened 23 percent against the dollar since mid-November, when Shinzo Abe, who became Prime Minister in December, promised bold monetary and fiscal expansionary policies during his election campaign.

The BOJ's sweeping monetary expansion unveiled earlier this month, which aims to inject $1.4 trillion into the economy in less than two years, has given fresh momentum to the currency move. Many market players expect the BOJ's massive bond buying to force real-money Japanese investors such as life insurers to shift more funds to higher-yielding foreign bonds.

"Japanese real money investors are expected to announce further details of their investment intention for the new fiscal year over the coming days; hence, with the G20 support for BoJ policy, we expect the JPY-weakening trend to remain intact," analysts at Morgan Stanley said in a note, although they recommended staying cautious ahead of the BOJ meeting.

EURO VULNERABLE

The euro also remained vulnerable against the dollar on central bank expectations. On Monday, the single currency fell 0.23 percent to $1.3021.

Technical analysts at SEB said that a break below $1.3026 would likely "trigger a new round of selling" in the euro, with the next support then seen at $1.3001.

From a fundamental point of view, the euro has been hamstrung by persistent talk of an interest rate cut by the European Central Bank.

The euro "is moving towards 1.30 this morning because more European Central Bank officials sound like they support the idea of a rate cut or some form of additional easing from the central bank," said Kathy Lien, managing director at BK Asset Management in New York.

That makes this week's euro zone PMI and German IFO reports key, Lien added.

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