* G20 draft communique omits G7 language on domestic
* BoJ nominees awaited, less radical Muto seen front runner
* Euro seen remaining under pressure
* Dollar gains vs yen accelerate after U.S. data
By Julie Haviv
NEW YORK, Feb 15 The yen fell against the euro
and dollar on Friday on expectations that the Group of 20 at its
meeting this weekend will avoid targeting Japan over policies
that have weakened the yen.
The currency market was thrown into turmoil this week after
the Group of 7 issued a joint statement stating that domestic
economic policies must not be used to target currencies.
But the yen on Friday tumbled on a draft communique prepared
for Group of 20 finance leaders, which omits part of the G7
statement declaring fiscal and monetary policy may only be used
for domestic economic aims, a G20 delegate said on Friday.
The G20 finance leaders are meeting in Moscow beginning
later on Friday.
"The yen has reversed early gains and is now the weakest
major currency on reports the language of the G20 statement may
differ from that of the G7 countries," said Nick Bennenbroek,
head of currency strategy at Wells Fargo in New York.
"The G20 is expected to urge members to avoid competitive
devaluation, but not echo the G7 view that exchange rates should
not be a target of policy," he said.
Federal Reserve Chairman Ben Bernanke on Friday said the
United States is acting in line with the position of the G7 by
using domestic policy tools to boost growth and reduce
The euro last traded up 0.8 percent against the yen at
125.08 yen, after earlier falling to 122.87 yen, its
lowest level since Jan. 30. It hit a 34-month high of around
127.71 last week.
The yen rallied earlier this week on expectations officials
would express disapproval of Japan's policy.
The yen gained in the overnight session after Reuters
reported that sources said former top financial bureaucrat
Toshiro Muto was the front runner to become the next BoJ
Muto is seen as likely to pursue slightly less radical
stimulus measures than some of the other contenders. A decision
could come in the next few days, the sources said.
"Although this week has been marked by volatility
surrounding G7 and G20, it appears the path to currency weakness
will remain intact following those events," Bennenbroek said.
"Our bias remains towards further softness in the yen, while
the outlook for the euro has also turned more negative on the
back of this week's soft economic data," he said.
The euro also remained under pressure against the dollar a
day after the release of data showing the euro zone sinking more
deeply into recession than forecast. The grim picture is likely
to keep alive expectations of a interest rate cut by the
European Central Bank.
Euro zone money market rates are also likely to ease in
coming weeks, keeping the euro well off the recent highs above
$1.37 struck on Feb 1.
The euro last traded flat at $1.3358.
Michael Woolfolk, senior currency strategist at BNY Mellon,
said investors should not expect the "currency war" debate to
dissipate after this weekend's G20 meeting.
"You've got the G7 on one side and the BRICS on the other,"
he said, referring to the big emerging economies of Brazil,
Russia, India and China. "They have opposing views on zero
ECB chief Mario Draghi criticized on Friday recent "chatter"
on currencies and said the euro's exchange rate was in line with
long-term averages. Like ECB policymaker Jens Weidmann, who
spoke earlier, Draghi resisted pressure from some euro zone
politicians to target the euro's exchange rate on the grounds it
The dollar extended gains against the Japanese yen and pared
gains versus the euro after a slew of U.S. data.
U.S. manufacturing got off to a weak start this year as
motor vehicle production tumbled, but a rebound in factory
activity in New York state this month suggested the decline
would be temporary.
Consumers were a bit more upbeat early this month even as
they paid more for gasoline and their paychecks were reduced by
higher taxes, other data on Friday showed.
The dollar last traded at 93.64 yen, up 0.9 percent,
after earlier hitting a one-week low of 92.21 yen. It had set a
33-month high of 94.465 on Monday and solid chart support was
expected at 92.00 yen.
Speculation over what, if anything, G20 officials might say
about Japan has been swirling all week.
"The long-term weakening trend for the yen remains intact,"
said Howard Jones, adviser at money managers RMG Wealth
Management. "We are comfortable with our view the dollar will
rise to 100 yen in the coming months. It is an easy trade to