* Dollar/yen off highs, option barrier at 81.50 cited
* Dollar heads for best week vs yen since late June
* Euro under pressure as worries about Greece weigh
By Anooja Debnath
LONDON, Nov 16 A sell-off in the yen paused on
Friday but was on course for its biggest weekly losses against
the dollar since late June on expectations a new Japanese
government would push for further monetary easing.
The dollar has rallied more than 2 percent against the yen
over the past two sessions -- its biggest two-day rally since
October 2011 -- after Japanese Prime Minister Yoshihiko Noda
paved the way for a snap election on Dec. 16. The lower house of
parliament was dissolved on Friday.
Shinzo Abe, leader of the main opposition Liberal Democratic
Party and likely to be Japan's next leader, called on Thursday
for the country's central bank to adopt interest rates of zero
or below to spur lending.
The dollar was down 0.2 percent at 81.00 yen, with
traders citing a large options barrier at 81.50 yen and
stop-loss orders placed above it.
It hit a 6-1/2 month high of 81.46 yen on Thursday on
trading platform EBS and some said it could rise towards 82 yen
if the Bank of Japan, which holds a policy meeting next week,
indicated it could ease further.
"The basic driver is still the interest rate differential
between the dollar and yen, which is very narrow, and we have to
wait for what happens after the elections," said Marcus
Hettinger, global FX strategist at Credit Suisse in Zurich.
"Dollar/yen can go a little bit higher to 81.50, but we
don't see a big catalyst for weaker yen as it still depends on
interest rate differentials. Only if the BOJ were to ease more
aggressively we will see some weakness in the yen but it is not
yet clear when this will happen."
The dollar/yen pair has had a robust correlation with the
spread between two-year U.S. Treasuries and Japanese government
bond yields. Short-dated Japanese bond yields have fallen
sharply this week but so have U.S. Treasury yields on
expectations of Federal Reserve easing and safe-haven flows into
Treasuries due to worries about the U.S. fiscal cliff.
Some strategists said the yen's current weakness may not
last, especially if worries about the U.S. fiscal cliff mount
and euro zone debt concerns deepen. The yen is often a
sought-after currency during times of uncertainty.
"It is hard to see dollar/yen move too high in this
environment and unfortunately for the Ministry of Finance the
yen is still fulfilling the role of safe haven," said Neil
Mellor, currency strategist at Bank of New York Mellon.
"I would be surprised if dollar/yen went significantly
higher than the current 81 levels."
Investors remained on edge about the uncertainty in Greece
and recent economic data out of the euro zone has done little to
lift market sentiment towards the euro.
The euro was down 0.6 percent at 103.10 yen, but
still on course for its biggest weekly gains since early
Against the dollar, the euro was down 0.4 percent to 1.2730
, though still well above Tuesday's two-month low of
$1.2661. Near term resistance is seen at its 200-day moving
average of $1.2810.
"Particularly bad figures will move the euro but it is
unlikely to rally on a positive figure as we have a market that
is looking for reasons to sell the euro, not buy it," Mellor
Investors were also nervous about the start of budget talks
in the United States, fearing a stand-off in negotiations to
avoid some of the $600 billion of spending cuts and tax hikes
that kick-in in January.
A protracted impasse could see investors seek shelter in the