* Option-related bids keep yen's slide in check
* Expectations of more easing keep pressure on yen
* Euro still favoured among G3, but ECB event-risk looms
* RBA, BOE also in focus this week
By Hideyuki Sano and Ian Chua
TOKYO/SYDNEY, Feb 4 The yen steadied slightly
off a 2 1/2-year low against the dollar on Monday as
option-related buying prompted short-term players to refrain
from testing the Japanese currency's downside for now.
Sentiment toward the yen remained bearish, however, as the
Bank of Japan was expected to remain under the most pressure
among major central banks to ease policy aggressively.
"Now that Japanese policymakers set a two-percent inflation
target, they can't stop monetary easing even if the yen falls to
around 100 yen per dollar because inflation will be nowhere near
two percent in the near future," said Mitsuru Saito, chief
economist at Tokai Tokyo Securities.
The dollar bought 92.63 yen, down 0.2 percent from
late U.S. trade on Friday. But it was still not far from a 2-1/2
year high of 92.97 yen seen on Friday.
An attempt early on Monday to test 93 yen was hampered by
dollar selling to hedge option barriers. Still, many traders see
it on track to retest 95.00, a level at which it was capped in
"Traders have learned over the past three months that
selling the yen is the best way to make money. They will not
change that habit unless there's clear change in trend," said a
trader at a Japanese bank.
The euro also extended its rally to 126.97 on
Friday, nearing its 2010 peak of 127.46. It was last at 126.19
yen, 0.3 percent below late U.S. trade.
Only five weeks into the year and the common currency is
already up around 10 percent against the yen. The dollar is
nearly 7 percent higher, following a rise of about 13 percent
"The Japanese authorities have committed themselves to a 2
percent inflation target, but the market perceptions about
economic growth and inflation expectations remain subdued,"
analysts at Barclays Capital wrote in a note.
"We therefore believe that the authorities will continue to
use the JPY as a tool to boost actual inflation, thus helping to
validate the new 2 percent target."
Data last Friday showed currency speculators added bearish
bets on the yen, while trimming bets against the greenback.
Among the G3 currencies, the euro has been the standout
performer, having notched up gains of 3.5 percent against the
dollar since the start of the year.
It was last at $1.3627 down slightly from late U.S.
levels after climbing as high as $1.3710 on Friday, a level
unseen since late 2011.
Data last Friday showing euro zone factories had their best
month in nearly a year during January underscored optimism for
U.S. jobs data was mixed with employment growing modestly in
January but encouragingly, job gains in the previous two months
were larger than first reported.
Part of the reason for the euro's outperformance is the
European Central Bank's relatively upbeat view on the euro zone
The currency has been so far unfazed by acorruption scandal
in Spanish ruling party, which drove public support for Prime
Minister Mariano Rajoy to a record low.
The Bank of England is expected to maintain a dovish tone
when it meets on Thursday. This will give no reprieve to
sterling, which has slumped to 15-month lows on the euro. The
common currency bought 86.91 pence, having risen as
high as 87.16 pence.
Against the dollar, sterling was trading at $1.5698
, dangling just above a five-month low of $1.5674 hit a
Commodity currencies have somewhat faded into the
background, although the New Zealand dollar has been quietly
grinding higher thanks to the hawkish tone struck by the
Reserve Bank of New Zealand in recent comments.
The kiwi drifted up to a 16-month high against the greenback
at $0.8493 and hit a 2-1/2 year peak to the Australian
dollar, which slid to NZ$1.2274.
The Aussie is set to remain on the defensive as the Reserve
Bank of Australia (RBA) is expected to keep the door open to
more rate cuts this week.
While the RBA is not expected to ease at its first meeting of
the year on Tuesday, analysts expect it will eventually be
forced to do so later in the year, given the number of economic
sectors struggling with the strong currency.