* Dollar/yen pressured by profit-taking
* Japan finmin Aso says Japan will buy ESM bonds
* Euro/yen bounces briefly after Aso's comments
* Euro to remain firm vs dollar ahead of ECB meeting
By Anooja Debnath
LONDON, Jan 8 The euro and dollar sagged against
the yen on Tuesday as investors took profit on recent bets
against the Japanese currency triggered by anticipation of
looser monetary policy from the Bank of Japan.
The single currency gave up earlier gains made after
Japanese Finance Minister Taro Aso said the government would buy
bonds issued by the European Stability Mechanism (ESM), the euro
zone's permanent bailout fund. The move was seen
having little impact on the yen.
A jump in the euro to a session high of 115.25 yen from
around 114.60 yen after Aso spoke quickly reversed.
Strategists said the decision would have little impact on the
yen as Japan would most likely buy ESM bonds using existing
The euro was down 0.5 percent on the day at 114.54, edging
further away from an 18-month high of 115.995 yen set on Jan. 2
on trading platform EBS.
"Japan's comments helped euro and dollar/yen a bit higher at
first. But then everyone realised they are just going to use
current reserves so there should actually be no impact," said
Geoff Kendrick, FX strategist at Nomura.
The dollar fell to a session low of 87.23 yen as
investors booked profits on its recent rally. It was last down
0.4 percent at 87.40 yen, some way off the 88.48 level touched
last Friday, its highest level since July 2010.
The U.S. currency remained under pressure with talk of
selling by Asian central banks. Traders and analysts said the
dollar was due a pullback against the yen until it was clearer
what the Bank of Japan intended to do at its meeting on Jan.
"We will perhaps see a marginal retracement (in dollar/yen)
over the next couple days and I'd be slightly more bearish
dollar over the next few days ... on profit taking," Kendrick
The dollar has surged nearly 12 percent in about two months
on expectations a new government elected in December will
persuade the Bank of Japan to adopt more forceful monetary
Strategists said the outlook was for further greenback
"I think the market will now try to find what the dollar's
range against the yen will be, for example whether we are in for
an 83-88 range or 85-90," said Satoshi Okinawa, senior global
markets analyst for Sumitomo Mitsui Banking Corporation.
The euro held steady against the dollar at $1.3124,
above a three-week low of $1.2998 set on Friday. Chart support
was cited just below $1.30, near its 50- and 55-day moving
Markets are positioned for the European Central Bank to keep
rates on hold when they meet this Thursday, but strategists said
any talk by policymakers about future interest rate cuts could
undermine the euro.
With no significant economic data due on Tuesday, the euro
would remain firm ahead of the ECB meeting and Spanish and
Italian bond auctions towards the end of the week.
"Markets have backed away from peripheral issues in Europe
for now and unless we start to get broader concerns, euro/dollar
will continue to trade sideways for now," Nomura's Kendrick