* Dollar/yen resistance at 100 yen still strong
* Bank of Japan holds rates, Japanese inflation weak
* U.S. Q1 GDP growth accelerates but misses expectations
* Focus turns to Fed and European Central Bank policy
NEW YORK, April 26 The dollar dropped on Friday
to its lowest against the yen in more than a week after the Bank
of Japan left policy unchanged and data showed the U.S. economy
expanded more slowly than expected in the first quarter.
The dollar was on pace to notch its largest daily percentage
the yen since April 15 as a confluence of factors, both
technical and fundamental, came into play.
The BoJ held off from announcing new monetary initiatives on
Friday, while policymakers were divided over whether the central
bank can meet its target for 2 percent inflation in two years.
"Dollar/yen continues to react to what happened overnight
and while the BoJ did not surprise, two of the board members
said it would be hard to reach the 2 percent inflation target
and that put (upward) pressure on the yen," said Charles
St-Arnaud, forex strategist at Nomura Securities in New York.
"Then, we had the weak GDP data, signaling underperformance
in the U.S. and that led to short covering," he said.
U.S. gross domestic product expanded at a 2.5 percent annual
rate, the Commerce Department said on Friday, after growth
nearly stalled at 0.4 percent in the fourth quarter. The
increase, however, missed economists' expectations for a 3.0
U.S. government bond yields, which move inversely to price,
fell after the GDP data as it stoked bets the Federal Reserve
might consider more stimulus at its policy meeting next week.
"That drop in yields was also a big driver of the dollar/yen
trade today," St-Arnaud said. "The selling started to feed on
itself and everyone started to jump on the selling bandwagon."
The dollar last traded at 98.26 yen, down 1 percent
on the day. It hit a session low of 97.54, its lowest since
April 17. The pressure pushed the dollar through technical
support levels and added to the drop.
Dollar/yen "price has traded below the eight-day exponential
moving average," said Christopher Vecchio, currency analyst at
DailyFX in New York. "And the diagonal support for the Bullish
Ascending Triangle has given way amid a break in the daily
relative daily strength index."
Some US$3.3 billion in yen changed hands on Reuters Dealing
on Friday compared with US$3.7 billion the same day a week ago.
The dollar drop also left the U.S. currency further away from
a four-year high of 99.94 yen touched on April 11.
Aggressive monetary stimulus announced by the BoJ in early
April triggered a sharp sell-off in the yen, but traders and
analysts said the fact that the dollar had not breached 100 yen
left it vulnerable to a pullback.
"The failure at 100 yen has focused people's minds on
whether they may have been too optimistic on the near-term
prospects for the yen," said Jane Foley, Rabobank senior
currency strategist in London.
"Today's inflation data suggested the market may have got
ahead of itself in its optimism that monetary stimulus will
create enough activity in the economy to push up inflation."
Data showed the fifth straight month of annual declines in
Japanese core consumer prices in March, despite the weaker yen.
Next week ushers in a slew of events and data, including
Federal Reserve and European Central Bank policy meetings and
key U.S. employment data.
"Some people were hoping for a strong U.S. GDP number given
stagnation in Asia and the euro zone, with the U.S. one of the
bright spots," said Amanda Chow, forex strategist at CitiFX, a
division of Citigroup, in New York. "But with the number coming
in lower than expected, it was a slight disappointment."
"We still expect the yen to continue to weaken in the medium
term because of economic fundamentals and the fact that the BoJ
is determined to do whatever it takes to reach its 2 percent
inflation target," she said. "The GDP data, while weaker than
expectations, may not be enough to warrant a reaction from the
Fed although that remains to be seen at next week's FOMC
The euro, meanwhile, was expected to stay under pressure in
the coming days on expectations the ECB will cut rates next week
to support the euro zone's fragile economy.
The euro last traded at $1.3023, up 0.1 percent on
the day, according to Reuters data.
For the week, the dollar fell 1.2 percent against the yen,
its worst week since the period ending June 3, using Reuters
data. The euro fell 0.2 percent against the dollar, its second
straight week of declines.