* Euro climbs broadly on better German Ifo survey
* Yen hits lowest level vs euro since August 2011
* BOJ kicks off 2-day meeting, expected to ease policy
By Nia Williams
LONDON, Dec 19 The euro hit a 16-month high
against the yen and 7-1/2 month peak against the dollar on
Wednesday, helped by better-than-expected German business
The yen also weakened broadly on expectations the Bank of
Japan will unveil more monetary stimulus when its two-day policy
meeting ends on Thursday.
Germany's Ifo survey showed business sentiment rose for the
second month running in December, raising hopes that Europe's
largest economy will recover quickly from a weak end to the
Many analysts said the euro could extend gains against both
the dollar and yen thanks to year-end demand from corporate and
long-term investors in thin trading conditions.
"The Ifo helps create more risk appetite in general and
positive equity markets, which is positive for the euro. It adds
to the upwards momentum in euro/dollar and euro/yen," said Niels
Christensen, FX strategist at Nordea.
The euro rose 0.6 percent to 112.13 yen, its
highest level since August 2011, taking out a reported options
barrier at 112 yen.
Against the dollar, the single currency matched its early
May peak of $1.3284. Many analysts said the next target for the
euro is the late March high just below $1.34.
Tentative signs of progress in U.S. budget talks also helped
to lift market sentiment.
If U.S. policymakers do reach a compromise to avert steep
tax hikes and spending cuts early next year, strategists said
currencies that tend to gain on a better global growth outlook -
like the euro and Australian dollar - should benefit.
The dollar index fell to a two-month low of 79.094.
BROAD YEN WEAKNESS
The dollar rose 0.25 percent to 84.39 yen, close to
Monday's 20-month high of 84.48 yen. Traders cited an options
barrier at 84.50 yen and stop-loss buy orders above that level.
Expectations of looser policy from the BOJ, which tend to
weigh on the yen, have been bolstered by a landslide election
victory for Japan's Liberal Democratic Party (LDP) at the
weekend. The LDP is committed to aggressive monetary easing.
Persistent selling interest from non-Japanese players has
helped to drag the yen lower, said Jesper Bargmann, Asia head of
G11 spot FX for RBS in Singapore. He expected the dollar to stay
supported ahead of BOJ's policy decision on Thursday.
Some analysts warned any BOJ measures may fall short of
market expectations however, which could prompt some investors
to buy back the yen.
"Markets are getting pretty excited about tomorrow's BOJ
announcement, rightly or wrongly. Profit-taking either into the
BOJ or directly after makes sense both in dollar/yen and the
Nikkei," said Geoff Kendrick, FX strategist at Nomura, who said
the BOJ was more likely to take strong measures in 2013.
Fourteen of 19 economists polled by Reuters last week said
they expected the BOJ to ease this week, most likely by
increasing its 91 trillion yen ($1 trillion) asset-buying and
lending programme by up to 10 trillion yen.
Investors are also focused on whether the BOJ will raise its
inflation target. 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.
In addition to speculation that the BOJ might ramp up
monetary easing in coming months, a deterioration in Japan's
trade balance has also contributed to the recent bets against