* Dollar, euro on pace for best day vs yen since 2008
* BOJ pledges to pump $1.4 trillion into economy
* Options show less demand for protection against dollar
* ECB's Draghi says "ready to act," Cyprus no template
By Julie Haviv
NEW YORK, April 4 The dollar and euro notched
their largest daily percentage gains against the yen since late
2008 on Thursday after the Bank of Japan surprised markets with
an ambitious plan to fight deflation in a radical overhaul of
The dollar rose more than 3 percent and the euro more than 4
percent versus the yen after the BoJ unleashed the world's most
intense burst of monetary stimulus, promising to inject about
$1.4 trillion into the economy in less than two years, a radical
gamble that sent its bond yields to record lows.
Governor Haruhiko Kuroda, chairing his first policy meeting,
committed the BOJ to open-ended asset buying and said the
monetary base would nearly double to 270 trillion yen ($2.9
trillion) by the end of 2014.
"This is not your grandfather's BOJ," said Boris
Schlossberg, managing director of FX Strategy at BK Asset
Management in New York.
"The fact that they came out, doubled the size of the QE and
are willing to do all these non-conventional measures suggested
that they really want to take dollar/yen to 100," he said.
The dollar rose as high as 96.41 yen on Reuters data,
near a 3-1/2-year peak of 96.71 set on March 12. It was last
trading at 96.14 yen, up 3.3 percent on the day and on track for
its best day since October 2008.
The euro soared as high as 124.48 yen and last
traded at 124.38, up 4.1 percent on the day, marking its
biggest one-day move since November 2008.
In the options market, three-month dollar/yen risk reversals
, a broad gauge of currency market sentiment,
remained biased toward puts, the right to sell dollars at a
future date, but demand stood at its lowest level since March
"The BoJ announcement was more aggressive than almost
anybody had expected," said Jens Nordvig, global head of FX
strategy at Nomura Securities in New York.
The anticipation of long-dated Japanese government bond
purchases has already caused the Japanese yield curve to
"This sets the stage for asset allocation changes in coming
months," he said. "We have been out of the yen trade in recent
weeks, but we think another leg of yen weakness is in store as
domestic asset managers start to shift in the new fiscal year,
and on the back of unprecedented policy-aggressiveness by the
Nomura Securities said given the weaker U.S. growth momentum
lately, the dollar may not be the best currency to express yen
Instead, the firm said it's buying the Australian dollar
against the yen, targeting a move to 105 in two to three months.
The BOJ's new plan means it will buy about 7 trillion yen
($73 billion) of bonds per month, equivalent to about 1.4
percent of gross domestic product. By comparison, the U.S.
Federal Reserve is buying $85 billion of bonds per month, about
0.6 percent the size of the economy.
Kuroda also said he would not hesitate to adjust policy
The yen also weakened against other currencies, with the
Australian dollar rising above 100 yen for the first time since
U.S. PAYROLLS DATA EYED
The yen's direction in the near-term will depend on the U.S.
nonfarm payrolls report, due on Friday. Employers likely added
200,000 jobs to their payrolls last month and the unemployment
rate is seen steady at a four-year low of 7.7 percent, according
to a Reuters poll.
A disappointing reading could keep U.S. bond yields
depressed and add to expectations of more bond-buying from the
Federal Reserve, which would pressure the dollar against the
Data showing weaker-than-expected growth in U.S.
private-sector employment and initial jobless claims at
four-month highs last week has fueled worries the labor market
is losing momentum.
The euro rose versus the dollar, with gains accelerating in
the afternoon as investors covered short positions, bets made on
a currency falling, a trader said.
European Central Bank President Mario Draghi said the bank
stood ready to act if growth continues to languish. He also
affirmed his commitment to keeping the euro zone intact and said
the Cyprus bailout was not a "template" for future rescues in
the currency zone.
The euro rose as high as $1.2949, its highest since
March 25. It last traded up 0.7 percent at $1.2934.
according to Reuters data.