FOREX-Yen climbs after minister's comments; BOJ and Bernanke in focus

Sun May 19, 2013 11:38pm EDT

Related Topics

* Yen jumps after Japanese official says it has weakened enough

* Other major currencies subdued ahead of key events this week

* BOJ meeting, Bernanke's Congressional testimony in focus

By Sophie Knight and Ian Chua

TOKYO/SYDNEY, May 20 (Reuters) - The yen bounced off a 4-1/2-year low against the dollar on Monday after Japan's economy minister suggested the government might be satisfied with its current level, following a sharp decline over the past six months.

The dollar was down 0.4 percent at 102.81, having slid about 1 percent to 102.00. The euro plumbed 131.05 from 132.45 late in New York, before steadying at 131.95. Support is seen around 131.10, with resistance above 132.55.

Just last Friday, the dollar reached a 4-1/2-year high of 103.32, while the euro hovered near a 3-1/2-year peak of 132.78.

The turnaround came after Japan's economy minister, Akira Amari, said the yen's excessive strength has largely corrected and further weakness in the currency could damage Japan's economy.

"The moves are due to the dollar's strength rather than the yen's weakness, so there's more focus on what the Fed does or says than statements from Japanese politicians," said Yoshio Takahashi, currency strategist at Barclays in Tokyo.

"Even if they think the yen has weakened enough they have no way of stopping it."

Last month, the Bank of Japan unleashed the world's most intense burst of stimulus, promising to inject $1.4 trillion into the economy in less than two years to meet its pledge of achieving 2 percent inflation in roughly two years.

At its May 21-22 policy meeting, the BOJ is expected to hold off on easing policy further, but may fine-tune its market operations to stem recent volatility in the bond market.

In contrast, expectations are rising that the the Federal Reserve will wind down its Quantitative Easing (QE) programme some time this year, after a flurry of upbeat U.S. data in the past few weeks has shown an improving economic landscape.

Data out on Friday showed currency speculators had increased their bets in favour of the U.S. dollar to the highest in 11 months in the week ended May 14.

Dollar bulls, however, will be keeping a close eye on Bernanke's testimony to Congress later in the week, given that he has showed no signs of wanting to taper the Fed's bond-buying, or QE programme any time soon.

"We expect Bernanke to reiterate the Fed's commitment to an accommodative policy stance, while sticking to the latest policy statement in terms of cost and benefit of further QE, that it is prepared to increase or decrease the size of purchases as the economy evolves," analysts at Barclays Capital wrote in a client note.

The euro was steady against the dollar, buying $1.2836 , hanging near a one-month low of $1.2796 reached on Friday.

The Australian dollar reclaimed 0.4 percent to $0.9771 after plumbing an 11-month trough of $0.9711 set on Friday, at the tail-end of a nearly 6 percent slide so far this month.

The Aussie has lost some of its shine after an unexpected rate cut from the central bank and as Chinese demand for natural resources shows little sign of recovering to levels that drove the currency above parity with the U.S. dollar.

"The Aussie is a lot easier to sell off than the Kiwi because of its more obvious correlation with China's economy," said Takahashi of Barclays.

"At the moment it is the weakest of the three commodity currencies, with the Canadian dollar in top place."

On Monday, the New Zealand dollar gained 0.6 percent to $0.8109. It has dropped 5.2 percent this month so far.

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