February 18, 2013 / 4:01 AM / 4 years ago

FOREX-Yen sags as G20 refrains from criticising Japan's expansionary policies

4 Min Read

* Japan escapes direct criticism from G20

* Yen softer across the board, downtrend intact

* Markets waiting for clues to next BOJ governor

* Euro near 3-week low, sterling near 6 1/2-month low

* Dollar up 0.7 pct vs yen, euro down 0.2 pct vs dollar

By Ian Chua and Hideyuki Sano

SYDNEY/TOKYO, Feb 18 (Reuters) - The yen weakened across the board on Monday after Japan escaped direct criticism from its G20 peers on its bold reflationary plans that have weakened the currency and raised international complaints of competitive advantage.

The Japanese currency fell further against the dollar after Prime Minister Shinzo Abe said buying foreign bonds could be among options for the Bank of Japan. [ID: nT9E8GV00H]

Abe's comments on Monday came after the G20 declined at a weekend meeting in Moscow to single out Tokyo but committed to refrain from competitive devaluations and said monetary policy would be directed only at price stability and growth. Japan said this has given it a green light to pursue its policies.

"The markets seem to interpret that the G20 gave a nod to Japan's position that the yen is adjusting from excessive strength in the past. However, if Japanese policy makers try to verbally intervene by mentioning specific levels, that's probably off-limits," said a trader at a Japanese trading house.

"I'd imagine the dollar could rise a few yens more but if it rises to 100 yen, that will cause more friction" with Japan's major trading partners, he added.

Abe said on Monday that the BOJ's monetary easing is aimed at beating deflation, not weakening the yen. Abe also said that while Japan will not take steps to manipulate exchange-rate moves, it retains the right to correct excessive rises in the yen.

The dollar rose 0.7 percent to 94.12 yen, having bounced smartly from a low near 92.20 on Friday. It is within reach of a 33-month peak around 94.47 set a week ago. The euro is at 125.35, also not far from a 34-month high of 127.71 reached early this month.

Yen bears had turned cautious last week, worried Japan would be openly criticised for allowing the yen to weaken. In the week ended Feb. 12, currency speculators cut bets against the yen, although they remained bearish on the currency.

"A lightly more nuanced tone in the G20 communique should reassure Japanese policymakers and the market by removing the risk of Japan being labeled as a currency manipulator," analysts at Barclays Capital wrote in a client note.

They said the yen's medium-term downward trend is intact and maintained their 12-month forecast of 100 for dollar/yen.

New Governor

The market's focus is now on Prime Minister Shinzo Abe's nominee for the next Bank of Japan governor. Abe is expected to announce his choice in coming days.

Sources told Reuters that former top financial bureaucrat Toshiro Muto is leading the field of candidates to become the next central bank governor. It is expected that he would intensify stimulus efforts to reflate the economy.

The euro was listless, staying near a three-week low against the dollar set last Friday.

The single currency has fallen about 2.5 percent since peaking at a 15-month high of $1.3711 on Feb 1 as worries about the health of the euro zone economy weighed on sentiment. Last week, data showed the region slipped into a deeper recession than expected in the last three months of 2012.

"The data has made a rate cut by the European Central Bank more realistic. The euro will come under pressure from its weak economic fundamentals," Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The common currency dipped 0.2 percent to $1.3334, though it has support near $1.3310, the 38.2 percent retracement level of its Nov-Feb rally, where it rebounded on Friday.

Some traders expect the single currency to encounter more pressure ahead of an election in Italy on Feb 24-25.

The British pound also flirted with a 6 1/2-month low of $1.5462 set Friday, last trading at $1.5473. A Bank of England policymaker said on Saturday the currency may need to weaken further to rebalance Britain's economy.

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