FOREX-Yen at 10-day high vs dlr as BOJ offers little on more easing

Tue Apr 8, 2014 7:14am EDT

Related Topics

* BOJ keeps policy unchanged, sounds upbeat on economy

* BOJ Governor Kuroda sees no immediate need to ease policy

* Euro supported by wait-and-watch stance by ECB policymakers (adds fresh comments, details)

By Anirban Nag

LONDON, April 8 (Reuters) - The yen rose on Tuesday, as some investors trimmed bets against it after the Bank of Japan held off from additional easing and Governor Haruhiko Kuroda offered little indication that more stimulus was likely in the short term.

The dollar fell 0.5 percent to a 10-day low of 102.515 yen while the euro shed 0.3 percent to 141.20 yen.

Also helped by subdued stock markets, with which it has an inverse correlation, the yen had been inching up before the BOJ policy decision.

It extended those gains after the BOJ kept policy unchanged, and strengthened further after Kuroda sounded upbeat about the economy and said both and inflation growth would pick up in coming months despite a sales tax hike in April.

Many investors have been selling the yen in anticipation that the sales tax hike will hurt consumption, and that the BoJ may have to ease policy in coming months to soften the blow.

"Kuroda is signalling a 'steady-as-she-goes' hand as regards to monetary policy which will disappoint some yen bears," said Peter Kinsella, currency strategist at Commerzbank. "Unless inflation falls sharply it doesn't look that they will ease."

The greenback has also struggled against the yen in recent sessions after U.S. jobs data on Friday disappointed some investors who have been betting on a faster recovery in the world's largest economy. It has pulled back from a 10-week high of 104.13 yen set on Friday.

The dollar's drop offered a good opportunity to investors to initiate fresh bets in favour of the greenback and against the yen, analysts said.

That is based on the view that monetary policy between the Federal Reserve and the BoJ is increasingly diverging. The Fed is tapering its bond-buying programme and many are also looking for it to hike rates sometime in the middle of 2015.

"At 102.50 yen, dollar/yen looks attractive to go long," said Yujiro Gato, analyst at Nomura, London. "The downside for dollar/yen is limited and at the end of the second quarter, we could see it rise to 105 yen."

LOW VOLATILITY

Besides monetary policy divergence between the BoJ and the Fed, implied volatilies - a gauge of how choppy a currency will be - have fallen too in the past few weeks.

Low volatility means a favourable environment for carry trades, where investors borrow in a low-yielding currency to invest in riskier assets. That hurts the yen which is traditionally favoured in times of economic uncertainty and financial market turmoil.

"The low volatility in FX markets generally should be mildly supportive for carry trades and indirectly for dollar/yen," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.

That is likely to underpin higher-yielding, growth-linked currencies such as the Australian dollar and New Zealand dollar against the yen and keep the yen's gains in check against the U.S. dollar, Henderson added.

The euro inched up against the dollar, to trade at $1.3770 , staying above a one-month low of $1.3672 set on Friday. It gained after the European Central Bank policymakers again played down the need for any immediate action.

Many, though, were wary of pushing it much higher.

"For the ECB, further appreciation of the euro is not acceptable. Any move towards $1.40 will see a response," said Bill O'Neill, head of the UK investment office at UBS Wealth Management.

"Negative deposit rates will clearly have an impact on weakening the euro. The Fed won't be enough to push the euro/dollar decisively lower, you need some form of accommodation from the ECB."

(Additional reporting by Masayuki Kitano and Natsuko Waki; Editing by Catherine Evans)

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