* BOJ easing expectations keep hammering yen
* Euro steady ahead of ECB meeting on Thursday
* ECB seen holding rates steady
By Anooja Debnath
LONDON, Jan 10 The dollar neared a 2-1/2-year
high against the yen on Thursday, with the Japanese currency
looking susceptible to further losses on increasing bets of
easier policy by the country's central bank.
While the European Central Bank is widely expected to keep
rates on hold, when it meets later on Thursday, the euro was
seen vulnerable against the dollar, as some traders positioned
themselves for a risk of a rate cut.
The dollar was up 0.5 percent on the day against the yen
at 88.30 yen, not far from 88.48 yen hit Friday, its
highest level since July 2010. The yen gave up most of its gains
earlier this week.
"We can definitely see the trend of yen weakness continue,"
said Peter Kinsella, currency strategist at Commerzbank.
"Data for China last night was very good and that was good
for risk in general and bad for safe-haven currencies, like the
yen, which weakened on the back of that. The BOJ increasing its
inflation target poses a further risk to the yen."
China's export growth showed a surprisingly sharp rebound in
December to a seven-month high, which saw growth-linked
currencies such as the Australian dollar hit a
three-week high against the dollar at $1.0568.
The euro was up 0.4 percent against the yen at
115.27 yen. The euro is expected to climb slightly if the ECB
maintains status quo on policy.
Traders reported a high demand for options betting on
further yen weakness, with one-month dollar/yen implied
volatility - a measure of expected price movement -
rising to its highest since March 2012.
One-month risk reversals showed demand to buy
yen puts - or bets on the yen falling - rising sharply to 0.95,
up from around 0.4 at the start of the week.
Yen moves will likely be volatile ahead of the BOJ's Jan.
21-22 policy meeting, as seen in the yen's roughly 1.2 percent
rebound from that low earlier this week.
"Short-term players will likely take profits as soon as the
yen stops falling," said Teppei Ino, currency strategist at the
Bank of Tokyo-Mitsubishi UFJ. "But then again, there's also
chance that expectations of BOJ easing could keep the yen under
pressure until the bank's policy meeting."
The BOJ is widely expected to heed Prime Minister Shinzo
Abe's call for adopting a 2 percent inflation target at its next
Further signs of recovery in China failed to lift the
risk-sensitive euro against the dollar, as traders focused on
the ECB meeting.
Against the dollar, the euro was flat on the day at $1.3066.
Reported bids from Asian central banks at $1.3040 were likely to
limit any falls in the euro. Chart support was expected near
$1.2995, its 50 and 55-day moving average.
"The euro has struggled to sustain any rallies past
$1.30-$1.40 in the past few weeks. With economic data out of the
euro zone not looking good, it is difficult to construct a
bullish story for the euro," Commerzbank's Kinsella said.
The ECB is expected to keep interest rates on hold at its
first policy meeting of the year on Thursday, but some market
players think the bank may cut them some time in coming months
and that the bank's chief, Mario Draghi, may drop hints of that
in his news conference at 1330 GMT.
Traders said the market has already priced in some chance of
Draghi hinting at a rate cut down the road. If he doesn't, the
euro could be seen edging up.