* Dollar hits 2 1/2-year high vs yen, could target 90 yen
* Abe says BOJ should mull maximising employment as mandate
* Euro/dollar near 8 1/2-month peak on Draghi commentsŸ
By Anooja Debnath
LONDON, Jan 11 The dollar rose to a fresh 2
1/2-year high against the yen on Friday after Japanese Prime
Minister Shinzo Abe said the Bank of Japan should consider
adding employment to its existing mandate of price stability.
Traders said further losses were in store for the struggling
yen, after the dollar broke a 30-year resistance line of
89.30 yen to hit a high as 89.35 yen, its strongest since June
The dollar last traded at 88.98 yen, up 0.2 percent on the
day, with options barriers cited at 89.50 yen. A breach of the
barriers could propel the dollar higher.
"The pace of increase not just (in dollar/yen) but also the
pace of policy reforms in Japan is exceeding market
expectations," said Ian Stannard, head of European FX strategy
at Morgan Stanley.
"As a result we have raised our forecast even further...
looking for dollar/yen to move towards the 95 level by the end
of this quarter."
Abe's comments on Friday put renewed pressure on the yen, as
having a dual mandate similar to the U.S. Federal Reserve's,
could see the BOJ undertake more aggressive monetary easing.
The euro climbed to 118.58 yen, its highest since
May 2011, and last stood at 118.02 yen, up 0.2 percent on the
day. The euro had risen broadly after European Central Bank
President Mario Draghi on Thursday gave no indication of
near-term cuts in interest rates.
Data showing Japan's first current account deficit in ten
months, of 222.4 billion yen ($2.5 billion) in November, far
larger than the forecast of a 3.5 billion yen ($39 million)
deficit, also put pressure on the yen.
"Short-term players who had earlier taken profits are now
re-entering. A rise above 90 is within sight now," said a trader
at a Japanese bank.
The yen has been sinking since November on speculation the
BOJ could ease policy further. Analysts expect the BOJ to adopt
an explicit 2 percent inflation target at its policy meeting on
Jan. 21-22 to fall in line with the aims of the government.
"We expect this move up (in dollar/yen) to be sustained and
to maintain this current momentum. The pullbacks in dollar/yen
have been very shallow and this underlines the strength of this
trend," Morgan Stanley's Stannard said.
Draghi's comments pushed the euro up 1.6 percent on
Thursday, its biggest daily gain in five months and to a
one-week high against the dollar.
While the euro was down 0.1 percent on the day against the
dollar on Friday at $1.3263 it was not far from an 8 1/2-month
peak of $1.33085 hit last month.
BNP Paribas analysts said in a note that euro/dollar was
"far from overvalued even after yesterday's bounce" and said a
test of resistance at $1.3325 was "on the cards".
The euro's ascent helped it to a four-month high against the
Swiss franc of 1.2175 francs.
Solid demand at a sale of Spanish debt on Thursday also
bolstered the euro and the market will closely watch an Italian
bond auction on Friday.
The Australian dollar was at $1.0566, near $1.0599
touched on Thursday which was its highest since mid-September.
Morgan Stanley's Stannard said if the Aussie moved above the
$1.06 area, it could "certainly open the way for a move up
towards the $1.10 area, which is our forecast for the first half
of the year." He however warned that weak economic fundamentals
in Australia could weigh on the Aussie in the second half of