* Yen within sight of one-month high vs dollar
* Investors nervous BOJ easing may disappoint expectations
* Euro vulnerable before ECB meeting on Thursday
By Anooja Debnath
LONDON, April 3 The yen and euro traded in
narrow ranges on Wednesday, with investors reluctant to
second-guess central bankers in the run-up to tricky monetary
policy decisions in Tokyo and Frankfurt.
The yen held close to a one-month high against the dollar as
markets took the view that the Bank of Japan might fall short of
expectations for aggressive easing on Thursday.
The euro looked vulnerable given a recent run of weak euro
zone data that, when added to political turmoil in Italy and
concerns over Cyprus, could lead European Central Bank President
Mario Draghi to strike a dovish tone hours after that in his
Analysts said choppy moves in currencies were unlikely
before the end of the BOJ's April 3-4 policy meeting, in which
it is widely expected to ramp up its bond buying and extend the
maturities of the bonds it purchases.
But some who have sold the yen in anticipation of bold
stimulus measures to beat deflation in Japan are worried the
BOJ, in its first policy review under new governor Haruhiko
Kuroda, might not live up to expectations.
"The question most investors face is, given that we have
seen such a sharp move higher in dollar/yen since mid-November
last year, very little was on actual policy moves, it was mainly
based on expectations and the time has come to deliver," said
Raghav Subbarao, FX strategist at Barclays Capital.
"While I do think there is some potential for disappointment
I think the downside is limited as the focus will shift to the
end of the month, when the BOJ meets again, and they could be
more aggressive then," he said.
He added that the dollar could cross 100 yen in the next six
The dollar was up 0.1 percent at 93.46 yen, holding
above a one-month low of 92.57 yen set on Tuesday. The U.S.
currency was still some way off a 3-1/2 year high of 96.71 yen
set last month.
The dollar has climbed around 20 percent against the yen
since November, when markets first started pricing in more
aggressive monetary easing from the BOJ.
As a result of wariness ahead of the meeting long positions
in the dollar versus the yen have likely been pared back over
the past few weeks, traders said. That lighter positioning may
limit the scope of any drop in the dollar after the BOJ's
decision on Thursday.
The euro held steady against the dollar at $1.2820,
not too far from a four-month low of $1.2750 set last week. A
reported large option expiry at $1.2800 is likely to keep the
common currency pinned near these levels and traders cited model
funds as the main buyers of the euro.
The euro has been on the back foot since a business survey
showed on Tuesday that manufacturing across the euro zone fell
deeper into decline in March.
Political deadlock in Italy, where attempts to form a
government have so far failed, and concerns about the
implications of Cyprus's bailout for other indebted euro zone
countries also curbed demand.
Although the ECB is expected to keep interest rates
unchanged at Thursday's meeting, analysts said the overall trend
was for a drift lower in the euro.
"There does seem to be a bias towards looking for a slightly
weaker euro ahead of Draghi because of soft numbers yesterday,
and we still have the Italian carry-on and Cyprus," said Daragh
Maher, FX strategist at HSBC.
The euro found brief support on news that the International
Monetary Fund will contribute 1 billion euros over three years
to the 10 billion euro bailout for Cyprus.
In the near term, last week's low of $1.2750 is likely to
provide support for the euro, while any gains could be capped by
the 200-day moving average at $1.2889.
The euro was up 0.1 percent at 119.87 yen, but
still near Tuesday's five-week low of 119.15 yen.