* Yen drops for 10 straight weeks vs dollar
* US consumer sentiment in January hits lowest in over a
* 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 10th
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 4.8 percent stronger so far in
2013. The euro also fell against the dollar after steep gains
the previous session.
The dollar has gained 3.8 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 deflationary spiral.
"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
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 90.08 yen. On the
week, the dollar was up 0.9 percent against the yen.
Intraday bias stayed on the upside, analysts at
ActionForex.com said, with the current rally seen extending to
the 94.98 resistance level.
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
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.
Kathy Lien, managing director at BK Asset Management in the
New York, thinks the BoJ could disappoint investors next week,
which could lead ot a rebound in the yen.
"A shift to a 2 percent inflation target is already
discounted by the market and we fully expect the BoJ to
acquiesce, but what the market wants to see is an action plan
and we're not sure if the BoJ governor will go that far when
there are only three months left in his term," said Lien.
CHINA DATA WEIGHS ON RISK ASSETS
Concerns about global growth weighed on risk appetite after
China 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 vs. the greenback to
US$1.0507. The Canadian dollar also fell, pushing
the U.S. currency up 0.6 percent to C$0.9915.
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
Riskier assets got a reprieve 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
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
119.95 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 1.2443 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 $1.3316, down 0.4 percent. On the week, the euro
slipped 0.3 percent against the greenback.