* Dollar pressured against the yen, support at Jan. 1 low
* Euro to remain firm vs dollar ahead of ECB meeting
NEW YORK Jan 8 The dollar and the euro fell
against the yen on Tuesday as more investors bet recent gains
were too far, too fast even with current expectations for
looser monetary policy in Japan.
Analysts and traders said the yen has scope to rebound
further in coming days, although gains will be capped by the
expectations that the Bank of Japan will ease monetary policy.
The dollar has rallied against the yen since Japan's newly
elected government said it would push the Bank of Japan, headed
by Governor Masaaki Shirakawa, to adopt more forceful monetary
Earlier on Tuesday the euro gained against the yen after
Japanese Finance Minister Taro Aso said the government would buy
bonds issued by the European Stability Mechanism (ESM), the euro
zone's permanent bailout fund.
"The FX focus has been on plans for Japanese stimulus,
rumored to be $228 billion, and the finance minister's comment
that he favors buying foreign bonds, including the ESM, with FX
reserves," said Camilla Sutton, chief currency strategist at
Scotia Capital in Toronto.
The dollar fell to a session low of 86.95 yen after a
rally of nearly 12 percent in recent months that saw the dollar
touch its highest level since July 2010. It was last down 0.8
percent at 87.07 yen, with solid support expected at around the
low hit on Jan. 1.
Analysts said investors were nervous of pushing the yen too
much lower due to the risk the BOJ may not opt for aggressive
stimulus as early as its next meeting on Jan. 21-22, with a
focus on Shirakawa's tenure at the helm of the Japanese central
"We still have Shirakawa, who is not leaving until end of
March, so there is a risk of disappointment," said Chris Turner,
head of FX strategy at ING in London.
The euro was last down 1.2 percent on the day at
113.76 yen, having earlier hit a session high of 115.21 yen
after Aso's comments, though that was still below an 18-month
high set on Jan. 2.
"Japan's comments helped euro and dollar/yen a bit higher at
first. But then everyone realized they are just going to use
current reserves so there should actually be no impact," said
Geoff Kendrick, FX strategist at Nomura, of the market reaction
to the plans to buy ESM bonds.
The euro was down 0.4 percent on the day against the dollar
at $1.3064, less than a cent above a three-week low set
on Friday. Some $4.05 billion in euros had changed hands through
the global session using Reuters Dealing data.
Markets are positioned for the European Central Bank to keep
rates on hold when it meets this Thursday. The single currency
was volatile on market talk that France's sovereign debt rating
would be imminently downgraded but impact was fleeting. A French
Finance Ministry spokeswoman on her Twitter feed called the
rumors "unfounded and false."
With no significant economic data due on Tuesday, the euro
was seen staying in a range ahead of the ECB meeting and Spanish
and Italian bond auctions toward the end of the week.
However, any hint by ECB policymakers about future interest
rate cuts could undermine the currency.
"Markets have backed away from peripheral issues in Europe
for now, and unless we start to get broader concerns,
euro/dollar will continue to trade sideways for now," said Geoff
Kendrick, FX strategist at Nomura in London.