* Dollar/yen pares gains in choppy trade led by JGB market
* BOJ pledges to pump $1.4 trillion into economy
* Yield-hungry Japanese investors could boost foreign bond
By Sophie Knight
TOKYO, April 5 The yen touched a 3-1/2-year low
on Friday after suffering its biggest one-day tumble since late
2008 in the previous session, when the Bank of Japan surprised
markets with a radical campaign of monetary expansion to attack
The dollar rose as high as 97.20 yen on trading platform
EBS, a level not seen since August 2009.
The greenback later pared its gains to trade flat at 96.32
yen due to profit-taking in choppy trading. Traders said a sharp
rebound in Japanese government bond yields prompted the
reversal, weighing on the dollar against the yen.
"The whole market is just completely JGB-related now. And
it's just before the weekend, so it's an adjustment, people are
taking profits," said a trader who declined to be identified.
"It's a chaotic situation but there's still a firm tone to
the market. People will still buy on dips against the yen.
They're saying '100 yen, here we come'," he added.
The greenback soared 3.6 percent against the yen on Thursday
after the BOJ unleashed intense monetary stimulus, promising to
inject about $1.4 trillion into the economy in less than two
years, a gamble that sent bond yields plummeting as prices rose
on the prospect of massive BOJ bond-buying.
Governor Haruhiko Kuroda, chairing his first policy meeting,
committed the BOJ to open-ended asset buying and said the
monetary base would nearly double to 270 trillion yen ($2.9
trillion) by the end of 2014.
"They've committed to expanding the monetary base at quite a
significant pace, which has had a very big impact on the
market," said Bill Diviney, currency strategist at Barclays
Capital in Tokyo.
The yen pared losses against major currencies after dropping
steeply earlier in the session. Against the euro, it was a 0.1
percent firmer at 124.50 yen, after losing 4.3 percent on
Thursday, its biggest one-day fall against the single currency
since November 2008.
Analysts says European bonds could benefit as the Japanese
yield curve has already flattened on expectations of the BOJ
purchasing long-dated Japanese government debt, which could
pique domestic investors' hunger for higher yields abroad.
The BOJ's new plan means it will buy about 7 trillion yen
($73 billion) of bonds per month, equivalent to about 1.4
percent of gross domestic product. By comparison, the U.S.
Federal Reserve is buying $85 billion of bonds per month, about
0.6 percent the size of the economy.
"Domestic investors are likely to be encouraged by the BOJ's
promise to stay accommodative for quite some time," said Diviney
of Barclays, adding that he expected U.S. assets to see the most
significant boost from Japanese investors' forays abroad.
Japanese retail investors have already begun sniffing out
riskier assets. Subscriptions for an emerging markets equities
fund launched last week for assets in countries such as Turkey,
Indonesia and Thailand reached nearly $1.6 billion, the highest
for a single launch since December.
Analysts say that the dollar has space to run higher against
the yen now that it has regained a foothold above the 96 yen
Barclays foresees the dollar firming to 103 yen in the
coming weeks, while Societe Generale sees that level as a
long-term target that should be reached by the first quarter of
" stay bearish yen for now. External forces, namely
softer US data and euro area-led deterioration of risk
conditions this spring, may well temper the JPY sell-off in Q2,"
said a Societe Generale report.
Some investors remained cautious on Friday as they awaited
the U.S. nonfarm payrolls report later in the day. A
disappointing result could keep U.S. bond yields depressed,
fueling expectations of more bond-buying from the Federal
Reserve, which would weigh on the dollar.
Data showing weaker-than-expected growth in the U.S.
private-sector employment and initial jobless claims at
four-month highs last week has led to worries that the labour
market is losing momentum.
Against the dollar, the euro slipped 0.1 percent to 1.2926
after a sharp reversal on Thursday. After first dropping
to a 4-1/2-month low around $1.2745, investors pared back their
bearish bets against the single currency, prompting it to rise
0.7 percent by late U.S. trade.
European Central Bank President Mario Draghi said on
Thursday the bank stood ready to act if growth continues to
languish. He also affirmed his commitment to keeping the euro
zone intact and said the Cyprus bailout was not a "template" for
future rescues in the currency zone.