* Yen pressured by speculation about BOJ easing this week
* Anti-Japan protests in China not helping yen
* Increased risk appetite post-Fed move supports euro
By Hideyuki Sano
TOKYO, Sept 18 The yen was under pressure on
Tuesday on speculation that the Bank of Japan might loosen
policy while increased risk appetite after the Federal Reserve's
easing last week helped keep the dollar near a seven-month low
against a basket of currencies.
That left the euro close to four-month highs both against
the yen and the dollar, though some traders think the single
currency's rally since late July may be running out of steam
The dollar traded at 78.57 yen, after having risen as
high as 78.93 yen on Monday, way above a seven-month low of
77.13 yen hit just last Thursday, driven by buying by
speculative accounts such as hedge funds, traders said.
"There's quite a lot of expectations about the BOJ's easing
priced in now. The dollar/yen is unlikely to fall much ahead of
the outcome of the BOJ's policy meeting," said a senior trader
at a European bank, referring to the bank's two-day meeting
starting on Tuesday.
The Federal Reserve's announcement last week of a new
asset-buying programme has spurred speculation that the Bank of
Japan might look into policy easing to counter the effect of the
Also supporting the dollar versus the yen was a rise in U.S.
bond yields after the Fed's action. The 10-year U.S. bond yield
stood near a four-month high of 1.89 percent hit on
The dollar/yen has traditionally had a high correlation with
U.S. bond yields, partly based on the perception that higher
U.S. yields should attract more dollar-buying by Japanese
"The Fed's QE3 had been considered as the possible biggest
reason to push the dollar against the yen. But now with U.S.
bond yields rising on expectations the QE3 will boost the
economy, buying in the yen has lost momentum," said Yunosuke
Ikeda, senior FX analyst at Nomura Securities.
Bond prices fell and yields rose after the Fed's QE3 move on
expectations of higher growth and possible inflation. Prices
rebounded and yields gave up gains on Monday after the sharp
moves of late last week.
The yen also might be undermined slightly by concerns about
anti-Japan protests in China, Japan's biggest trading partner,
over a territorial dispute.
Its impact could grow if Chinese boycotts of Japanese
products become large enough to dent Tokyo's exports to China
and worsen Japan's trade balance, traders said.
For now, the dollar/yen is capped at the bottom of the cloud
at 78.72 on the daily Ichimoku chart, though a break there could
open the way for a test of the Aug. 20 high of 79.66 yen, some
market participants said.
The euro stood at 102.96 yen, having rallied to a
four-month high of 103.858 yen on Monday.
Against the dollar, the euro fetched $1.3103, down
slightly from late U.S. levels but still not far from a 4
1/2-month high of $1.3173 hit on Monday.
The euro has rallied some 9 percent from a two-year low of
$1.2040 in July when investors were deeply worried that the
currency bloc might be heading for a break-up as Spanish and
Italian borrowing costs were soaring.
For now, the euro is supported by optimism that the European
Central Bank's new bond buying programme could help Madrid
survive its debt crisis, though some are concerned that Spanish
bond yields have risen over the past few days.
Increased risk appetite after the Fed promised to pump $40
billion a month into the economy is also helping the euro and
other growth-linked currencies.
"Markets are now having steroids. Everyone knows the
steroids will lose their power at some point in the future. But
for the moment, they are working," said a trader at a U.S. bank.
The euro's rise saw the dollar's index against a basket of
currencies hovering near seven-month low.
The dollar index stood at 78.95, near a seven-month
low of 78.601 hit on Friday.
The Australian dollar traded at $1.0475, off a
six-month high of $1.0625 set on Friday, pressured by worries
that slower growth in China would put the brakes on Australia's