* Markets positions for aggressive Bank of Japan action
* Yen to move higher if Bank of Japan seeks unlimited bond buying
* U.S. consumer sentiment in January hits lowest in over a year
* China data softer than expected
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 18 The yen dropped to a 31-month low against the
U.S. dollar on Friday, sliding for a tenth straight week, on expectations of
aggressive monetary policy action from the Bank of Japan.
Investors, however, opted to book profits in the euro versus the yen,
although the currency shared by 17 counties was 0.6 percent higher this week and
4.7 percent stronger so far in 2013. The euro also fell against the dollar after
steep gains the previous session.
The dollar has gained 3.7 percent against the yen this year and most
strategists believe the U.S. currency is poised to continue appreciating if the
BoJ early next week takes steps - beyond market expectations - to halt a
"Expectations are nearly universal for a shift from a 1 percent to a 2
percent inflation target, including upsized (asset buying) measures," said Dan
Dorrow, head of research at FX broker Faros Trading in Stamford, Connecticut.
"Prime Minister (Shinzo) Abe and the political class as a whole have a very
compelling need to push BoJ into a regime change and keep it there. The
political pressure on the BoJ will not abate."
Sources familiar with the BoJ's thinking told Reuters the central bank will
consider making an open-ended commitment to buy assets until the 2 percent
inflation target is reached.
Such a plan would exceed market expectations, analysts said.
The dollar hit a peak of 90.18 yen, its highest since June 2010. It last
traded up 0.2 percent at 90.01 yen. On the week, the pair was up 0.8
Intraday bias stayed on the upside, analysts at ActionForex.com said, with
the current rally seen extending to the 94.98 resistance level next.
On the downside, a break of the 87.77 yen support, the low struck on
Wednesday, is needed to signal a short-term top. A reported options barrier at
90.75 yen could also act as near-term resistance.
Traders reported strong demand for options betting on further yen weakness,
with one-month dollar/yen implied volatility - a measure of expected
price movement - rising to its highest since August 2011.
One-month risk reversals showed demand to buy yen puts, or
bets on the yen falling, also rose.
CHINA DATA WEIGHS ON RISK ASSETS
Concerns about global growth weighed on risk appetite after China, the
world's second-largest economy, reported slowing growth in 2012.
Currencies correlated to global growth, such as the Australian and Canadian
dollars, fell on the data.
The Australian dollar slid 0.4 percent versus the greenback to US$1.0504
. The Canadian dollar also fell, pushing the U.S. currency up 0.7
percent to C$0.9923.
The safe-haven dollar could further gain against riskier currencies such as
the Aussie dollar over the next month as U.S. politicians debate how to raise
the country's borrowing limit, or debt ceiling.
Worries about the debt ceiling weighed on a U.S. consumer confidence index
for January, which on Friday showed a decline for a second straight month, to
its lowest level in more than a year.
Riskier assets got a reprieve, however, in the afternoon. U.S. House
Republican leaders said they would seek to pass a three-month extension of
federal borrowing authority next week to give the Senate time to pass a budget
plan that reduces the country's fiscal deficit.
The euro zone's economic backdrop, meanwhile, remained dismal and should
data out of the region continue to show weakness, the European Central Bank may
opt to cut rates in the coming months, a negative for the euro.
The euro last traded 0.2 percent lower against the yen at 119.94 yen
, down from 120.70 hit earlier - its highest since May 2011.
The euro earlier climbed to a 20-month high against the Swiss franc of
1.2568 francs, with analysts expecting the Swiss currency to remain weak.
It last changed hands at 1.2446 francs, down 0.2 percent
Against the dollar, the euro retreated from $1.3401, just shy of an 11-month
high of $1.3403 set on Monday. It last traded at $1.3323, down 0.4