* Yen enjoys rare rally as short positions are squeezed
* Euro stays pinned near 4-mth lows vs USD on Cyprus
* Aussie dollar among best performers, up near $1.0460
By Ian Chua
SYDNEY, March 22 The yen held firm on Friday as
investors scrambled to cover bearish positions after the new
Bank of Japan governor played down the chances of an emergency
meeting, while dour economic news and Cyprus debt crisis kept
the euro pressured.
The dollar traded at 95.03 yen early in Asia, having
fallen more than 1 percent on Thursday, while the euro was at
122.54 yen, down from Thursday's session peak of
The moves came after new BOJ governor, Haruhiko Kuroda, was
coy about whether he would call a meeting ahead of the scheduled
April 3-4 policy review. At his inaugural media conference on
Thursday, Kuroda said the bank was ready to use all means
available to beat deflation.
Markets, which had been speculating on an emergency meeting,
were quick to reverse short positions that saw the yen rise
across the board.
Yet, the Japanese currency remained contained in a well-worn
range against the euro and was not far off a 3-1/2 year trough
against the greenback of 96.71 set last week.
The U.S. dollar is up around 9 percent against the yen this
year, while the euro is 7 percent higher, highlighting the
extent of bearishness already priced in.
Over the next few days, yen weakness could be tempered by
repatriation flows as Japan's fiscal year-end on March 31 looms,
"We see further rallies above 96.00 meeting with increased
resistance, while over the coming months we expect USD/JPY to
eventually slide back towards 90.00," said Vassili Serebriakov,
strategist at BNP Paribas.
While Japan has laid the groundwork for some serious action
to stimulate its economy, Cyprus continued to scramble for a
solution to its debt crisis.
Trying to speed things along, the European Union gave Cyprus
till Monday to raise the billions of euros it needs to secure an
international bailout. Failing that, it could face a collapse of
its financial system that could push it out of the euro currency
Not helping sentiment, Standard & Poor's cut Cyprus credit
rating deeper into junk status and a survey showed the euro
zone's economic downturn has deepened this month, even before
Cyprus's bailout debacle.
Euro bulls may have beat a hasty retreat but they have not
completely given up on a last minute deal to save Cyprus. The
euro eased to $1.2892 but managed to keep off a 4-month
trough around $1.2843 set on Tuesday.
Also helping the euro, demand rose and costs fell at a
Spanish bond sale, suggesting yield-hungry investors are
unconcerned that the financial turmoil in Cyprus might spread to
other parts of the euro zone.
Still, analysts said the risk for the euro is to the
"While we expect a constructive solution to emerge in the
coming days, EUR/USD is likely to continue to face headline risk
as capital controls will likely need to be imposed once banks
re-open. There is also near-term risk for the euro from softer
economic data," BNP's Serebriakov added.
Commodity currencies were among the best performers
overnight with the Australia dollar hitting a six-week
high near $1.0460. The New Zealand dollar climbed to a
two-week high of $0.8345.
Investors warmed to the Antipodean currencies after strong
Chinese manufacturing data on Thursday pointed to ongoing demand
for commodity exports from the two countries. The kiwi was
further supported by data showing surprisingly strong growth in
the fourth quarter.
There is no major economic data due in Asia on Friday,
leaving the focus squarely on developments in Cyprus. Lawmakers
there will on Friday debate emergency legislation tabled by the
government to confront the island's financial crisis.