* Recent Japan easing, high oil prices weigh on yen
* Euro zone services PMI disappoints, Greece concerns persist
* Sterling falls after BoE minutes
By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 22 (Reuters) - 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 macro-economic forces.
“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 account surplus.
“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.
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 $1.33.
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 manufacturing.
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.