(Corrects the milestone in paragraph 2 to a 31-month low)
* Yen hit by news that two doves chosen to lead BOJ
* Sterling weighed by Moody's downgrade of Britain
* Euro flat, but upside seen capped by Italy elections
* Aussie falls after soft China data
* Dollar/yen up 0.8%, cable down 0.2%, Aussie -0.4%
By Hideyuki Sano and Ian Chua
TOKYO/SYDNEY, Feb 25 The yen skidded to a
33-month low against the dollar on Monday as speculation
strengthened that the Japanese government is set to name two
strong supporters of aggressive monetary easing to top posts at
the central bank.
Britain's sterling also lost ground against major
currencies, slipping to a 31-month low versus the dollar,
following Moody's downgrade of the country's prized triple-A
sovereign rating late on Friday.
Tokyo plans to nominate Haruhiko Kuroda, a vocal advocate of
aggressive monetary expansion, as Bank of Japan governor and
Kikuo Iwata, an academic who has criticised the central bank for
not taking bold measures to fight deflation, as one of two
"Kuroda is a fan of a weaker yen and of deflation-bashing,"
said Kit Juckes, strategist at Societe Generale.
The dollar shot up to 94.77 yen , from 93.39 yen late
in New York on Friday, reaching highs not seen since May 2010.
"Iwata is a leading anti-BOJ academic and his appointment
was the shocker, prompting aggressive yen selling by foreign
speculators," said a trader at a Japanese bank.
The greenback gave up some of the gains on heavy selling
near 95 yen, some of which is thought be related to hedging
activity by option players holding barrier option at that level.
But it was still up 0.8 percent from late U.S. level to
stand at 94.22 yen.
As the dollar has risen already nearly 20 percent against
the yen in the past three months or so on expectations of BOJ
easing, some traders think the pace of the yen's fall will
"We are likely to see a more moderate and gradual fall in
the yen from here. At the end of the day, whoever leads the BOJ,
policy options the bank has are more or less the same," said a
trader at a Japanese bank.
The euro jumped to as high as 125.25 against the
yen, but remained shy of its 34-month peak of 127.71 set early
this month. It last stood at 124.41 yen, up 0.9 percent from
late last week.
Traders took aim at sterling as well, pushing it to a
31-month low of $1.5073 and a 16-month low of 0.8775
pound per euro. The pound last stood at $1.5124,
down 0.3 percent from late last week.
Moody's cut Britain's rating by one notch to Aa1 from Aaa,
citing weak prospects for economic growth. Britain joined the
United States and France in having lost its triple-A rating from
at least one major agency.
The rating outlook is stable, meaning any further change is
unlikely for the next year or so, but the sterling is still seen
under pressure because of expectations the Bank of England could
expand its quantitative easing further to bolster the fragile UK
The pound's implied volatilities have risen sharply in
recent weeks, with the one-month volatility rising to its
highest level in eight months.
As the yen and sterling fell, the dollar's index against a
basket of major currencies rose to its highest level since early
September. The dollar index rose to as high as 81.642.
Some traders say doubts over just how long the U.S. Federal
Reserve will keep its bond buying programme in place are helping
the dollar, even though many market players still think Chairman
Ben Bernanke has no plans to unwind stimulus any time soon.
Given such concerns, Bernanke's testimony to the Senate on
Tuesday is seen as a vital factor in determining the overall
direction of the dollar as well as broader financial markets.
Against the dollar, the euro held almost flat at $1.3200
, a tad above a six-week low around $1.3145 hit on Friday,
but its further upside is seen limited for now as investors eye
an unpredictable election in Italy.
Exit polls will be published shortly after polls close at
1400 GMT on Monday. Full official results are expected by early
A weak government could usher in new instability in the euro
zone's third largest economy and cause another crisis of
confidence in the European Union's single currency.
The Australian dollar took a beating after the HSBC's China
flash purchasing managers' index (PMI) for February slipped to
50.4, the lowest in four months, suggesting growth in the
country's giant manufacturing sector pulled back from two-year
highs hit in January.
The Aussie is highly sensitive to news out of China which is
Australia's top export market. It fell 0.4 percent to $1.0275
, edging closer to a four-month low of $1.0221 hit last
(Reporting by Hideyuki Sano; Editing by Sanjeev Miglani)