* Dollar retreats after BOJ policy underwhelms market
* Scope for yen weakness likely to resume longer-term
* Strategists say LTRO repayment could lift euro
By Nia Williams
LONDON, Jan 23 The yen pushed higher against the
euro and dollar on Wednesday, extending gains from the previous
day, when monetary easing from Bank of Japan fell short of some
expectations for faster, more aggressive action.
Weakness against the yen also dragged the euro lower against
the dollar, although losses were limited after a much
stronger-than-expected German economic sentiment survey on
Citi strategists said in a note that comments from Michael
Meister, a senior member of German Chancellor Angela Merkel's
party, indicating Germany may retaliate if the Japanese efforts
to cheapen the yen continue had also weighed on the euro.
After weeks of intense speculation that weighed heavily on
the yen, some market players were underwhelmed by the BOJ's
pledge to double its inflation target and switch to an
open-ended commitment to buying assets next year.
While the move to end years of economic stagnation was the
bank's boldest action yet, it had been widely leaked to the
media and fell short of lofty market expectations for an
immediate substantial stimulus boost.
The dollar fell 0.4 percent to 88.38 yen, retreating
from a 2-1/2 year high of 90.25 yen on Monday. The U.S. currency
is still up around 11 percent against the yen from mid-November.
"The BOJ meeting was marginally disappointing so there is a
bit of profit-taking going on," said Geoff Kendrick, currency
strategist at Nomura.
"Our view is that we will get stuck below 90 yen but
probably go no lower than 87 until we get more news, which will
not come out until we find out who the new (BOJ) governor is."
A forthcoming change in BOJ leadership is expected to weigh
on the yen, given expectations for Prime Minister Shinzo Abe to
appoint a governor favouring loose monetary policy. Current
governor Masaaki Shirakawa's term ends in April.
The euro fell 0.7 percent to 117.36 yen, pulling
away from a 20-month peak of 120.73 yen reached on Friday.
Still, many analysts saw the yen weakening over the medium-
to longer-term, based on expectations the BOJ will remain under
pressure to inject more stimulus into the economy.
"I continue to believe that this (BOJ) move is consistent
with the shift in attitude and in the direction of policy, which
will deliver a higher dollar/yen level over the coming year, and
an overshoot above 100 in due course," said Kit Juckes, FX
strategist at Societe Generale.
LTRO REPAYMENT AHEAD
The euro dipped 0.1 percent against the dollar to
$1.3305, holding within sight of last week's 11-month high of
$1.3404. Market players reported supporting bids at $1.3275-85.
Some strategists said the euro would find some support ahead
of an announcement on Friday on the size of next week's first
repayments of three-year loans taken by banks from the European
Central Bank a year ago.
Banks took more than 1 trillion euros in ultra-cheap LTRO
(loan-term refinancing operation) loans from the ECB. A Reuters
poll showed traders expected about 1 billion euros to be paid
back next week.
Nomura's Kendrick said investors would see the repayments as
a move to tighten monetary policy by the ECB, in sharp contrast
to the U.S. Federal Reserve and BOJ asset purchase schemes.
"Relative to other central banks the ECB is at least
flatlining and at best shrinking its balance sheet. We will wait
for the LTRO repayment and if that's a bigger number than
expected euro may break the highs around $1.34," he said.
Deutsche Bank strategists said in a note they viewed the
LTRO repayments as a major positive for the euro, and were
targeting a break above $1.35.