* Dollar/yen under pressure from profit-taking
* Yen direction hinges on BoJ meeting next week
* ECB's Nowotny reassures market after Juncker comments
* U.S. inflation data does little to sway sentiment
By Julie Haviv
NEW YORK, Jan 16 The yen rose against the dollar
and euro for a second straight session on Wednesday as a recent
warning from a Japanese minister about excessive yen weakness
continued to buoy the currency.
Forecasts of aggressive action by the Bank of Japan to
weaken its currency drove the dollar sharply higher in
recent months, with the greenback gaining nearly 11.3 percent in
the fourth quarter of 2012 and 2.1 percent so far this year.
However, after the yen hit a 2-1/2 year low of 89.67 this
week, most believe it was poised to recoup losses, with a
correction ignited by Japanese Economics Minister Akira Amari's
comments on Tuesday. Amari cautioned that excessive yen weakness
could boost import prices and hurt people's
"We are seeing consolidation and repricing of the yen right
now, which was to be expected given its sharp move lower since
late last year," said Camilla Sutton, chief fx strategist at
Scotiabank in Toronto.
"Action by the BoJ is mostly priced in right now, so now the
real risk is if the BoJ disappoints next week," she said. "A
less-dovish-than-expected BoJ will disappoint expectations and
cause the yen to continue moving lower."
Investors have put on big bets against the currency with the
new government in Tokyo very vocal about pressing the central
bank to tackle deflation, calling for a 2 percent inflation
"After next week's meeting, dollar/yen should settle into a
new range," Sutton said.
The BOJ is widely expected to agree to such a target at its
policy meeting on Jan. 21-22, although some traders said there
could be selling in dollar/yen afterwards, based on "buy on the
rumor, sell on the fact."
The dollar last traded at 88.54 yen, down 0.3 percent
on the day. Traders cited supporting bids at 87.70/80 yen.
The sell-off in dollar/yen dragged all of the major
The euro also fell against the yen to trade down 0.2
percent lower at 117.94. The euro had climbed to its
highest in 20 months earlier this week after the European
Central Bank dashed expectations of a near-term rate cut.
"What we are witnessing is deleveraging," said Kathy Lien,
managing director of FX strategy for BK Asset Management in New
"Over the past 2 months, with the blessing of Prime Minister
(Shinzo) Abe who pledged to ease monetary policy aggressively,
many investors jumped back into yen-funded carry trades and now
they are taking profits below key levels after Japanese
officials expressed concerns about yen weakness," she said.
EURO FLAT VERSUS DOLLAR
The euro held steady against the dollar as soothing comments
about the currency's recent strength made by an ECB policymaker
was offset by profit-taking and concerns about the region's
The euro briefly bounced after ECB member Ewald Nowotny said
the exchange rate was "not a matter of major concern," a strong
contrast to comments from Eurogroup head Jean-Claude Juncker,
who on Tuesday prompted investors to sell the euro by saying it
was "dangerously high."
The euro last traded at $1.3304, flat on the day.
Weak economic data from Europe highlighted the disparity
with the U.S. economy.
Demand for new cars in Europe fell to a 17-year low in 2012,
and even the German economy is suffering from the euro zone
If economic data continues to weaken, the ECB may opt to cut
rates, a negative for the euro.
Muted U.S. inflation pressures should give the Fed more room
to prop up the economy by staying on its ultra-easy monetary
policy path. U.S. consumer prices were flat in
The euro had rallied smartly in the days following last
week's ECB meeting. ECB President Mario Draghi downplayed
expectations of another rate cut and painted a more positive
outlook for the euro zone economy.
His supportive comments sent the euro to an 11-month high of
$1.3403 this week, according to Reuters data.