* Japan minister suggests yen has weakened enough
* BOJ meeting, Bernanke's congressional testimony in focus
* Dollar retreats from near three-year peak vs basket of
By Wanfeng Zhou
NEW YORK, May 20 The U.S. dollar fell against
the euro and yen on Monday as traders pared back expectations
Federal Reserve Chairman Ben Bernanke would hint at tapering
bond purchases this week.
The yen rebounded from a 4-1/2-year low against the dollar,
with the Japanese currency drawing support from comments by
Economy Minister Akira Amari that the yen's excessive strength
had largely corrected and further weakness could damage Japan's
Focus is shifting to Bernanke's testimony to Congress on
Wednesday after recent comments by Fed officials have fueled
speculation the central bank may taper its bond purchases sooner
"We may have been moving a little bit too early," said
Andrew Dilz, foreign currency trader at Tempus Inc. in
Washington. "I see a continuing of this exact pace of current
purchases at least through the end of the summer, which is going
to put some pressure on the dollar."
The dollar index, which tracks its value against a
basket of currencies, fell 0.6 percent to 83.764, retracing from
a near three-year peak set on Friday.
Speculation had grown that the beginning of the end of the
Fed's massive bond-buying program - at $85 billion per month -
might come sooner than many investors think if recent gains in
the U.S. labor market hold.
The roughly 50 percent jump in monthly job creation since
the program began has raised at least some chance the Fed could
ratchet back its buying as early as next month. The central bank
next meets to debate policy on June 18-19.
The dollar fell 0.8 percent to 102.31 yen, having hit
a low of 102.16, according to Reuters data. Last Friday, the
dollar reached a high of 103.30 yen.
The euro lost 0.6 percent to 131.84 yen and its
low on Monday, at 131.02, was the lowest since May 9.
The BOJ, which begins a two-day meeting on Tuesday, is
expected to keep policy unchanged but could tinker with its
bond-buying plan to curb a recent rise in Japanese yields.
Analysts said the yen looked set to resume weakening as Tokyo
was committed to easier monetary policy.
"Any dip in dollar/yen toward 101 or 102 yen is a buy as
Japanese policymakers are clear that there will be more asset
purchase or quantitative easing in the longer term," said Alvin
Tan, a currency strategist at Societe Generale in London.
He said short-term momentum indicators such as the 14-day
relative strength index showed the dollar was overbought against
the yen, hence a pullback was due.
The euro rose 0.4 percent to $1.2884 , having reached
a session peak of $1.2894, rebounding from a six-week low of
$1.2795 touched on Friday.
But some analysts say additional gains would be limited,
given strong expectations the European Central Bank will cut its
deposit rate - the rate paid on surplus cash parked by banks -
below zero in coming months.
JPMorgan lowered its second-quarter euro/dollar forecast to
$1.30 from $1.32 to reflect a shallower U.S. downturn, slower
Chinese growth and a protracted euro zone recession.
Any hint of the Fed winding down its asset purchases could
add the dollar's momentum, analysts said.
"We are dollar bulls and expecting more pieces of the puzzle
to fall into place - most notably serious speculation over the
normalization of Fed policy, which can drive U.S. money market
rates and the dollar substantially higher," Chris Turner, head
of currency strategy at ING in London, wrote in a note.
The dollar also weakened against other major currencies,
with sterling up 0.6 percent on the day and the
Australian dollar up 0.9 percent.