* Yen supported by Japan PM Abe's comments
* Sterling drops sharply after dovish BoE minutes
* RBNZ governor says New Zealand dollar overvalued
* Investors looking ahead of Fed minutes
By Anirban Nag
LONDON, Feb 20 The yen was steady on Wednesday,
holding to recent gains against the dollar and the euro after
Japanese Prime Minister Shinzo Abe said the need to establish a
public-private sector fund to buy foreign bonds had declined.
But sterling stole the limelight in the European session,
tumbling to its lowest in more than 8 months against the dollar
and a 16-month trough versus the euro after
minutes from the latest Bank of England meeting showed
policymakers were willing to ease policy further.
Investors will now turn to the release of minutes from the
U.S. Federal Reserve's latest policy meeting. Any hint the Fed
is getting closer to paring back its asset purchase scheme could
help lift the dollar broadly.
Earlier, the dollar fell against the yen after Abe's
comments mirrored those of his finance minister who has also
played down such talk of the scheme. Foreign bond purchases
would have helped push the yen lower, so suggestions that the
Japanese are no longer considering this plan helped the yen.
Abe heads to Washington for talks with U.S. President Barack
Obama later this week and where the yen's recent weakness is
likely to be on the agenda. Analysts said Japan was stepping
back from one of its more radical policy proposals with one eye
Also with the uncertainty whether Abe can appoint a Bank of
Japan chief who is more amenable to carry out aggressive
monetary policy easing playing out, the yen is likely to find
some respite from the constant selling pressure that it has been
subject to since November.
"Given that the U.S. has been quite critical of Japan within
the Group of Seven, and the market is short yen, we could see
some position squaring before the talks," said Chris Turner,
head of currency strategy at ING.
The dollar fell as low as 93.12 yen after Abe's
remarks, before recovering to trade at 93.50 yen, almost flat on
the day. It was still below a near three-year high of 94.465 hit
on Feb. 11. The euro was flat at 125.20 yen.
The possibility of setting up a foreign bond-buying fund
had been included in a campaign platform drawn up by Abe's
Liberal Democratic Party ahead of a national election last
"I think he was told at the G20 ... 'don't you dare, don't
you dare do that'," said Rob Ryan, a strategist for RBS in
Singapore, referring to the idea of setting up the fund.
A G20 statement at the weekend reiterated a commitment by
nations to refrain from competitive devaluations and stated
monetary policy would be directed at price stability and growth.
NEW ZEALAND DOLLAR DROPS
But Reserve Bank of New Zealand governor Graeme Wheeler said
on Wednesday that global imbalances and a weak U.S. dollar were
driving up the New Zealand dollar and had left the currency
overvalued compared to economic fundamentals.
The New Zealand dollar slid more than 1 percent to US$0.8358
after those comments.
"Currency wars are still what's driving markets, whether
it's the RBNZ, or Japan talking about buying or not buying
bonds," said Daragh Maher, currency strategist at HSBC.
"Even when we have juicier bits of data we are still
worrying more about what BoJ members say and that's what's
driving the yen."
At the Bank of England, which wants a weaker pound to drive
exports and support growth, policymakers even considered a rate
cut, the minutes showed.
All of which drove sterling to $1.5292, down 0.8 percent on
the day to its lowest since early June. The euro rose to 87.645
pence, its highest since late October, 2011.
Against the dollar, the euro was flat on the day at $1.3375
, with investors waiting for more economic data, like
flash euro zone PMI surveys on Thursday and the outcome of an
Italian election at the weekend before taking fresh positions.
A fragmented parliament after Italy's Feb. 24-25 election
may hamper the country's reform efforts and prompt investors to
sell the euro.