(Corrects amount in last paragraph to 100 bln euros from 1 bln)
* Dollar slips after BOJ policy disappoints market
* Long-term yen weakness to resume
* Strategists say LTRO repayment could lift euro
By Anooja Debnath
LONDON, Jan 23 The yen pushed higher against the
dollar on Wednesday, extending gains from the previous day, when
monetary easing from Bank of Japan fell short of some
expectations for an immediate and more forceful action.
The euro rose against the dollar and cut losses versus the
yen as sentiment towards euro zone assets continued to improve
and investors positioned for euro-area banks to repay part of
the loans taken from the European Central Bank last year.
That is likely to lead to some shrinking of the ECB's
balance sheet at a time when the Federal Reserve and the BOJ are
still expanding theirs. Balance sheet expansion usually hurts a
currency, so a repayment to the ECB should help the euro
especially against the dollar and the yen, traders said.
Strategists said while the yen would likely resume its
overall trend and fall across the board, investors would refrain
from betting against considerable yen weakness right away.
"We had a substantial move (in the yen) getting into the BOJ
meeting. Subsequent questions are being raised whether the BOJ
can achieve what it wants to and what are the implications of
its policies," said Audrey Childe-Freeman, head of foreign
exchange strategy at BMO Capital Markets.
"This is setting a much more cautious approach on the yen at
the moment, I would definitely not go into fresh yen short
positions just yet."
The dollar fell 0.2 percent to 88.52 yen, off a 2-1/2
year high of 90.25 yen on Monday. The U.S. currency is still up
around 11 percent against the yen from mid-November.
After weeks of intense speculation that weighed on the yen,
some market players were a bit disappointed by the BOJ's
decision that its an open-ended commitment to buying assets
would come into effect only next year.
While the move to end years of economic stagnation, which
included a pledge to double its inflation target to 2 percent,
was the bank's boldest action yet, it had already been priced in
by markets and fell short of lofty expectations for a faster,
substantial stimulus boost.
"Our view is that we will get stuck below 90 yen but
probably go no lower than 87 until we get more news, which will
not come out until we find out who the new (BOJ) governor is,"
said Geoff Kendrick, currency strategist at Nomura.
A change in BOJ leadership in April is expected to weigh on
the yen, given prospects for Prime Minister Shinzo Abe to
appoint a governor favouring more aggressive monetary easing.
Analysts saw the yen weakening over the medium term, based
on expectations the BOJ will remain under pressure to inject
more stimulus into the economy, possibly pushing the dollar to
100 yen, a level last seen in April 2009.
The yen was steady against the euro. The single currency was
at 118.25 yen, showing some signs of stability after
three straight day of losses.
The euro rose 0.2 percent against the dollar to
$1.3342, holding within sight of last week's 11-month high of
$1.3404. Market players reported bids at $1.3275-85.
The euro has been buoyed by receding fears around the debt
crisis, highlighted by European Central Bank president Mario
Draghi comments on Tuesday that the euro zone could begin 2013
with more confidence.
While strong German economic data on Tuesday lent some
support to the euro, strategists said that if the euro zone's
flash Purchasing Managers' Index figures due Thursday beats
forecasts, the euro could break above the $1.34 level.
Some analysts said the euro could rise before an
announcement on Friday on the size of next week's first
repayments of three-year loans taken by banks from the ECB a
"If (the repayment) is of a substantial size it would
confirm the systemic risks in euro zone are fading
further...that could be positive for the euro," BMO's
Banks took more than one trillion euros in ultra-cheap LTRO
(loan-term refinancing operation) loans from the ECB. A Reuters
poll showed traders expected around 100 billion euros to be paid
back next week.
(Additional reporting by Nia Williams; editing by Ron Askew)