* Yen hits one-month high vs dollar
* Pullback in U.S. manufacturing knocks USD lower
By Sophie Knight and Ian Chua
TOKYO/SYDNEY, April 2 The yen shot to a
one-month high against the dollar on Tuesday after
softer-than-expected U.S. manufacturing data prompted investors
to sell the greenback.
Further gains for the Japanese currency could be limited as
investors wait to see what the Bank of Japan (BOJ) will deliver
at its April 3-4 policy meeting.
The BOJ is widely expected to ramp up its bond buying and to
extend the maturities of the bonds it purchases under new
Governor Haruhiko Kuroda. The market has already priced in hefty
easing from the central bank, making it hard for policymakers to
The dollar fell 0.3 percent to 93.04 yen, having
fallen as far as 92.96, the greenback's lowest level against the
Japanese currency since early March.
The dollar has shed around 3.8 percent since peaking at a
3-1/2 year high of 96.71 yen on March 12.
"If you look at the spread between Japanese and U.S. bond
yields, then the current level looks more reasonable than 95 yen
to the dollar, which would only make sense if the yield on U.S.
Treasuries was 2.5 percent," said Masashi Murata, senior
currency strategist at Brown Brothers Harriman.
The yield on 10-year U.S. government bonds stood at 1.837
percent on Tuesday.
The dollar has come under pressure after data on Monday
showed factory activity grew at the slowest rate in three months
in March, raising concerns that the U.S. economy is losing
momentum due to government spending cuts.
The euro slipped 0.2 percent to about 119.68 yen.
Earlier on Tuesday, the euro briefly slipped to 119.49 yen,
matching a one-month low hit on Monday.
With the dollar under pressure, the euro drifted up 0.2
percent to $1.2867, pulling away from a four-month trough
of $1.2750 plumbed last week as concerns intensified over the
consequences of Cyprus' bailout conditions.
However, upside for the common currency is limited due to
political uncertainty in Italy and worries about the region's
debt problem and dour economic outlook.
"As the fundamental outlook for the euro region turns
increasingly bleak, the ECB remains poised to strike a dovish
tone for monetary policy," said David Song, currency analyst at
"We may see a growing number of central bank officials show
a greater willingness to push the benchmark interest rate to a
fresh record-low as the recession threatens price stability."
The European Central Bank holds its policy meeting on
Thursday, ahead of U.S. non-farm payrolls on Friday.
The Australian dollar edged up 0.2 percent to $1.0450
. Its immediate fortunes depend on the outcome of the
Reserve Bank of Australia's (RBA) policy meeting at 0330 GMT.
The RBA is expected to hold its cash rate steady at a record
low 3.0 percent, and the market is keen to see if it will drop
its easing bias or keep the door open to more cuts.
Any signs the RBA has ended its easing cycle could give
Aussie dollar bulls a green light to buy the currency.
"We expect the RBA to drop its easing bias, despite the high
exchange rate, given the recent run of better data," analysts at
Barclays Capital wrote in a client note.