* Japan's Amari warns of negative impact of weak yen
* Dollar could gain on safety bid related to debt ceiling
* German data weighs on euro
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 15 The yen was on track for its
biggest one-day gain against the dollar in eight months on
Tuesday as a warning from a Japanese minister about the
disadvantages of excessive yen weakness prompted investors to
pare back bearish bets.
The euro, meanwhile, fell against the dollar after three
straight days of gains, pressured by weak German data and the
yen's strength across the board. Europe's shared currency was on
pace for its worst showing versus the yen since June last year.
Expectations of aggressive action from the Bank of Japan to
weaken the yen have driven the dollar and euro sharply higher in
recent months. The greenback notched a nearly 11.3 percent gain
in the fourth quarter of 2012 and has risen more than 2 percent
so far this year.
However, remarks by Japanese Economics Minister Akira Amari
on Tuesday made investors nervous about the yen's fall. He said
excessive yen weakness could hurt people by raising import
Amari's comments countered remarks made by officials over
the past month that have strongly encouraged yen weakness.
With bets against the yen at lofty levels, many analysts
contend the currency is poised for a short-covering rally,
although it should prove temporary given widespread forecasts of
forceful action from the BoJ to heal Japan's weak economy.
"The rally in the yen is a function of what Amari said
overnight and the fact that global investors are taking money
off the table for now because the dollar and euro have risen too
far, too fast," said Sean Cotton, vice president and foreign
exchange adviser at Bank of the West in San Ramon, California.
The dollar last traded down nearly 1.0 percent at 88.59
, its worst day since May 2011.
Traders cited support at 88.20 yen, the dollar's 200-hour
moving average, while reported stop-loss sell-orders at 89.50
yen could cap any recovery in the U.S. currency. Traders also
cited option barriers at 90 yen.
The dollar hit a trough of 88.27 yen during the global
session, but losses were pared in North America following the
release of a slew of U.S. economic data.
U.S. retail sales rose solidly in December while
manufacturing in New York state contracted for a sixth month in
January. Other data showed inflation pressures remained muted,
with U.S. producer prices falling in December for a third
That should allow the Federal Reserve to stay on its ultra-
easy path to nurse the recovery, a negative for the dollar but a
positive for risk appetite.
Nevertheless, the dollar may fare well over the next month
as investors embrace its safety during a looming battle in
Washington over raising the government's borrowing limit, the
so-called debt ceiling.
Republican opposition in Congress to increase the $16.4
trillion ceiling raises the risk that the United States could
default on its debt in the coming months.
The dollar's setback on Tuesday came a day after it hit
89.67 yen, its highest since June 2010.
Bets on aggressive easing from the Bank of Japan have
weighed heavily on the yen in recent months. The BoJ has been
under pressure from newly elected Prime Minister Shinzo Abe to
adopt a 2 percent inflation target to beat deflation.
The BoJ holds its next policy meeting on Jan. 21-22.
Amari's comments also buoyed the yen against the euro, with
the single currency last trading down 1.3 percent at 118.17
yen. The euro on Monday hit 120.12, a 20-month peak.
The euro, which is up about 1 percent against the dollar
this year, slid on concerns about the U.S. debt ceiling debate
and weak data from Germany, Europe's largest economy.
After reaching an 11-month high on Monday, the euro last
traded at $1.3336, down 0.3 percent on the day.
The German economy was hit hard by the euro zone crisis in
the final quarter of 2012, shrinking more than at any point in
nearly three years as traditionally strong exports and
investment slowed, the Statistics Office said on Tuesday.
The euro had been rallying in the aftermath of a European
Central Bank meeting last week. Comments by ECB President Mario
Draghi were largely seen as supportive and served to downplay
expectations of a near-term rate cut.
Should data out of the euro zone continue to show economic
weakness, the ECB could opt to lower rates to spur growth.
But despite its fall against the dollar and yen, the euro
extended gains against the Swiss franc, rising to a fresh
13-month high. The euro rose to 1.2413, its highest
level since December 2011.
The Swiss franc has come under selling pressure as concerns
about the euro zone debt crisis have receded, prompting
investors, who had bought the franc as a refuge from the euro's
problems, to cut long positions.
"There is a general feeling that the cracks in the euro zone
economy are starting to dissipate and it is beginning to stand
on solid ground," said Bank of the West's Cotton.