* Markets positioning for bold action from BOJ
* Yen hits 2-1/2 year low vs USD, 20-mth trough vs euro
* Kiwi dollar knocked lower by tame inflation numbers
* China data. including GDP. next in focus
By Ian Chua
SYDNEY, Jan 18 The yen languished at
two-and-a-half year lows against the dollar on Friday following
a dramatic selloff as markets positioned for the Bank of Japan
to take bold policy action to tackle deflation.
Sources familiar with the BOJ's thinking told Reuters the
central bank, under relentless pressure from Prime Minister
Shinzo Abe, will next week mull pledging to buy assets
open-endedly until 2 percent inflation is foreseen.
Such a move would represent a marked turnaround for a
conservative central bank that has repeatedly resisted calls for
bold action. It would also far exceed expectations the BOJ would
opt for a more conventional step of topping up its asset-buying
programme at its Jan 21-22 meeting.
The dollar gained two full yen to a high of 90.14, a
level not seen since mid-2010, while the euro soared 3 yen
towards a 20-month high of 120.62. Both currencies
were trading near their overnight highs in early Asian dealings.
Initial resistance for dollar/yen is seen around 90.34, the
76.4 percent retracement of its May 2010-Oct 2011 fall. A break
there brings the 2010 high of 94.99 in focus.
The Australian dollar scaled a four-year peak around 95.00
Traders said the risk now, of course, is if the BOJ
"We think there is some risk of disappointment at the BOJ
meeting and scope for a yen rally. It is now consensus that the
BOJ will move to a 2 percent inflation target. However, more
aggressive measures may not come until closer to the nomination
of the new governor/deputy governors in Q2," said Kiran Kowshik,
strategist at BNP Paribas.
The dollar also lost ground against the euro and higher
yielding currencies, such as the Australian dollar, after upbeat
data on U.S. housing starts and jobless claims spurred demand
for riskier assets.
The euro last traded at $1.3375, within a hair's
breadth of an 11-month high of $1.3404 set Monday, while the
Australian dollar was at $1.0547, reversing Thursday's
fall sparked by a local labour force report.
Further upside now hinges on key economic data out of China
due around 0200 GMT. Confirmation that growth in the world's
second biggest economy had accelerated would no doubt help
bolster risk assets.
The New Zealand currency, however, suffered a setback after
data showed consumer prices at home fell unexpectedly in the
fourth quarter, keeping the annual rate close to a 13-year low.
The outcome meant the Reserve Bank of New Zealand could keep
interest rates at a record low for longer.
"We expect inflation will remain lower over the next two
quarters, so the risks are that the Reserve Bank will be on hold
a little bit longer than our December call," said Nick Tuffley,
chief economist at ASB Bank.
The kiwi lost a full U.S. cent in the wake of the data,
briefly reaching a low of $0.8324, before edging back