* Trend of yen weakness likely to persist
* Yen may win short-term reprieve from BOJ decision
* Euro steady near 7-1/2 month high versus dollar
By Anirban Nag
LONDON, Dec 18 The yen slipped on Tuesday,
trading near a 20-month low against the dollar on expectations
that a new Japanese government will drive the Bank of Japan
toward more aggressive monetary easing.
While the yen could find some support in coming days if
investors and speculators trim large bets against it, traders
said it was likely to trend lower in the medium term.
The dollar edged up 0.1 percent to 83.95 yen, having
hit a high of 84.48 yen on Monday, the U.S. currency's strongest
level against the yen since April 2011. Traders cited option
barriers at 84.50 yen with stop loss buy orders above that
The yen fell on Monday after the Liberal Democratic Party
surged back to power in an election on Sunday. The LDP and its
ally, the New Komeito party, secured the two-thirds majority
needed to overrule parliament's upper house, meaning the new
government has a greater chance of pushing though its policies.
The next prime minister, Shinzo Abe, wants someone more in
tune with his expansionary thinking to replace BOJ chief Masaaki
Shirakawa when his term expires in April. In addition, two
deputy governor posts are opening up in March.
"We are in a situation where we will see the government tell
the central bank what to do. Such a politicised situation is
never good for a currency and the yen will weaken," said Peter
Kinsella, currency strategist at Commerzbank.
"Apart from the politics, the economic data from Japan has
not been good. This should see quite aggressive easing from the
BOJ. We are forecasting 90 yen over the coming year."
Abe reiterated his calls for the BOJ to set a higher
inflation goal, saying on Tuesday that he has asked Shirakawa to
consider establishing a 2 percent inflation target. That would
be twice the BOJ's current goal and would mean more monetary
Several sources familiar with the BOJ's thinking have said
the central bank will consider no later than January whether to
adopt a 2 percent target.
"There is a good chance that the yen's weakness may persist,
especially heading into the end of the first quarter (of 2013),"
said Sim Moh Siong, FX strategist for Bank of Singapore.
YEN AND BOJ DECISION
Analysts said the dollar could come under pressure and the
yen edge higher in the near term, especially if the BOJ
disappoints those expecting more aggressive monetary easing
after a two-day policy meeting ending on Thursday.
Speculators have sold the yen on expectations the BOJ could
adopt a more aggressive asset buying programme. But sources
familiar with the BOJ's thinking have said the most likely
option is for the central bank to increase its asset-buying and
lending programme, currently at 91 trillion yen, by another 5-10
That would fall short of expectations and could lead to some
of the large short yen positions being cut.
"It's likely that they will not ease enough for the market's
satisfaction and we should see a little pull-back on that," said
Gareth Berry, G10 FX strategist for UBS.
The euro was steady against the yen at 110.45 yen
and against the dollar at $1.3165, hovering near a high
of $1.3192 hit on Monday, its highest in more than seven months.
The euro was supported by signs of progress in U.S. budget
talks. At stake are steep tax hikes and spending cuts that are
due to take effect early in 2013, which could push the U.S.
economy into recession and hurt demand for assets like stocks
and currencies like the euro and the Australian dollar.
The Swedish crown rose against the euro to
8.7300 per euro after the Riksbank cut its repo rate by 25 basis
points, as expected, and said rates would remain on hold for