FOREX-Yen struggles before Japan election, Aussie up on China move

Fri Jul 19, 2013 7:49am EDT

Related Topics

* Dollar near one-week high against yen ahead of upper house
    * Australian dollar rises after China's central bank
announces reforms
    * Japanese PM Abe's party expected to win
    * Abe victory would add momentum to economic programme, push
yen lower

    By Anooja Debnath
    LONDON, July 19 (Reuters) - The dollar held near a one-week
high against the yen on Friday ahead of Japan's upper house
elections, which could add momentum to Prime Minister Shinzo
Abe's aggressive economic reform drive.
    The Australian dollar rose to a session high
against the U.S. dollar, after China's central bank announced
long-awaited interest rate reforms, a move it said would help
lower financing costs for companies.  
    Opinion polls show Abe's ruling Liberal Democratic Party and
its New Komeito Party coalition partner are on track to win a
hefty majority. That would give him more freedom to push his
agenda of monetary easing, public spending and structural
reform, which could weigh on the yen.
    The dollar was down 0.1 percent at 100.25 yen, not
far from the one-week high of 100.87 yen hit earlier in the day.
Resistance was cited at 101.54 yen, the July 8 high. The dollar
is up more than 15 percent against the yen on the year.
    Chris Turner, head of FX strategy at ING, said any strength
in the yen would be temporary. 
    "The focus is very much on beating deflation over the next
two years, and the Bank of Japan is committed to doubling its
balance sheet by the end of 2014," he said, which will involve
pumping yen into the market.  
    Earlier in the session, the yen rose after Japan's benchmark
Nikkei slipped. A fall in equities can increase risk
aversion and spark demand for the yen, a traditional safe-haven.
    But the yen stayed vulnerable to the BOJ's massive monetary
expansion, while the dollar has been supported by prospects that
 the U.S. Federal Reserve could start scaling back its stimulus.
    While the options market has been showing a demand for
dollar/yen puts, or bets the dollar will lose ground, one month
risk reversals have narrowed to around 1.1 vols in
favour of dollar puts on Friday from 1.75 vols on July 11,
indicating market players have trimmed their yen strength bets.
    "The last trend (in risk reversals) is a bit positive for
dollar/yen and suggests markets are slightly less concerned
about a big correction lower in dollar/yen," ING's Turner said.
    The dollar index was down 0.1 percent at 82.672,
above Wednesday's three-week low of 82.342. 
    Strategists said that with expectations so high there was an
outside chance if Abe does not manage a landslide victory it
could lift the yen.
    "It could put a question mark on Abe's policies and be yen
positive," said Niels Christensen, FX strategist at Nordea.
    The euro was down 0.1 percent at 131.53 yen, but
not far from a seven-week high around 132.10 yen hit earlier on
Friday on trading platform EBS. Against the dollar, the euro
edged up 0.1 percent to $1.3122.
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