* Recent Japan easing, high oil prices weigh on yen
* Euro zone services PMI disappoints, Greece concerns
* Sterling falls after BoE minutes
By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 22 The yen stumbled to its
lowest against the U.S. dollar in more than seven months on
Wednesday, undermined by recent monetary easing in Japan, a rise
in oil prices, and worsening economic fundamentals in the
world's third largest economy.
Sterling also heavily sold off after minutes of a Bank of
England meeting unexpectedly showed two policymakers favored
further expansion of the bank's asset purchase program.
David Watt, senior currency strategist, at RBC Capital
Markets in Toronto said the yen has captured the attention of
most market participants in a sell-off he believes is driven by
"The U.S. is suddenly looking a lot better than Japan," said
Watt. "What we have seen happen is the reversal in the
dollar/yen two-year spread. For the last couple of years, the
spread has been narrow, but recently it has started to widen
again in favor of the U.S. dollar."
The widening in dollar/yen two-year spread reflects recent
improving U.S. economic data, compared to that of Japan. Data
early this week showed Japan posted a record trade deficit in
January and steep fall in exports to China.
The dollar hit a peak of 80.406 yen on trading
platfrom EBS, its highest since mid-July, with traders citing
buying by Japanese importers and offshore players. This took it
beyond highs hit in October and August after Japanese
authorities acted to curb yen gains. The dollar last traded at
80.287 yen, up 0.7 percent on the day.
The currency pair has traded above its 200-day moving
average for the last seven sessions, exhibiting its longest
running uptrend in almost a year.
High oil prices are also a negative factor for the yen as
Japan is a heavy oil importer. After last year's natural
disaster in Japan, only 5 out of 54 nuclear reactors are in
operation, increasing demand for energy imports.
That said, Nick Bennenbroek, head of currency strategy
at Wells Fargo in New York, expects the yen's slide to slow and
believes the excessive focus on Japan's trade deficit is
unwarranted because the country still has a healthy current
"The continued current account surplus suggests the
shift to a trade deficit could be less negative for the yen than
at first glance might seem the case," Bennenbroek said.
He also cited Japan's capital flows, which have turned
more yen-supportive in recent months and partly explained why
the Japanese currency has remained resilient despite the gradual
worsening in overall economic trends.
In addition, the market could see a reversal in yen selling
soon, as the end of Japan's fiscal year next month approaches, a
period that typically sparks demand for yen as Japanese firms
repatriate their funds.
The euro also gained against the yen, rising to 106.573,
a more than three-month high on trading platform EBS.
It was last up 0.8 percent at 106.400 yen.
Comments from a Japanese Ministry of Finance official that
there was still a risk of the yen rising and that Japan would
continue to monitor currency moves carefully and would respond
as needed added to broad yen weakness.
DANGER OF EURO ZONE RECESSION
Against the dollar, the euro was slightly higher on the day.
Investors continued to weigh the long-awaited Greek bailout deal
reached early on Tuesday against concerns about economic growth
and implementation risks of the deal.
The euro was also partly boosted by news clearing house
LCH.Clearnet reduced the additional margin requirement on Irish
government bonds to 15 percent from 25 percent, suggesting an
improving outlook on Ireland. That offset
surveys of purchasing managers showing the euro zone economy is
in danger of sliding into recession.
The euro was last at $1.32451, below Tuesday's
high of $1.32930, its highest level since Feb. 9. Since late
January the euro has traded in a range roughly between $1.30 and
Resistance remains lodged at the 100-day moving average,
currently at $1.33093. The euro has been unable to trade beyond
that level in nearly four months.
Earlier, surveys of purchasing managers released on
Wednesday indicated the euro zone economy is in danger of
tipping into recession, with Germany, Europe's biggest economy,
unexpectedly weak along with France. The survey showed
contraction in the services sector this month along with
But the euro rose to a two-month high against sterling
as the BoE minutes increased the risk of more easing
later this year. The pound also fell
against the dollar, sliding 0.8 percent to $1.5665.