* Sources say Japan GPIF to boost stock allocation to over
* Yen slips as Tokyo shares push higher on the GPIF report
* Aussie dollar hits 2-month low after weak Australian jobs
* Euro holds steady above 9-month low after ECB holds rates
(Updates after ECB holds rates steady)
By Patrick Graham
LONDON, Aug 7 The yen sagged on Thursday on news
that Japan's public pension fund plans to increase its
allocation to the domestic stock market, while the euro held
steady as investors awaited details of the European Central
Bank's latest outlook on policy.
The dollar rose 0.2 percent to 102.33 yen, pulling
away from a 1-1/2 week low near 101.76 yen set on Wednesday.
After a bullish month of trading which has raised expectations
of a longer-lasting rally, the greenback was just below 11-month
highs against a trade-weighted basket of major currencies.
The ECB, as widely expected, kept interest rates on hold,
but analysts said the euro was likely to move on the tone of
President Mario Draghi's comments on the struggling euro zone
economy at a news conference starting at 1230 GMT.
Inflation in the single currency area was just 0.4 percent
in July, while Italy has sunk back into recession and data from
Germany this week was poorer than expected, all adding to the
pressure on the bank to do more soon to stimulate growth.
"The rate of inflation will no doubt be an issue on which
Mario Draghi will have to comment in the press conference,"
analysts from Commerzbank said in a morning note.
"Should he sound too concerned at this juncture this might
put pressure on the euro. The increasingly difficult relations
with Russia are no doubt going to be an issue as well."
The euro was broadly flat at $1.3370 after the decision on
Daragh Maher, a currency strategist with HSBC in London,
said Draghi could sidestep all questions essentially by saying
that he has to wait and see what impact the policy measures
taken in June have.
"But I think the sensible questions will be about whether
the downside surprises we have seen make it more likely the ECB
will take further steps," he said.
"I think the balance of risks is against the euro."
The action overnight was all about the yen and the
Australian dollar, the latter falling almost 1 percent to a
two-month low after data showed a rise in the Australian jobless
The yen, attractive for investors seeking shelter from
growing tensions between the West and Russia, weakened as Tokyo
shares pushed higher after sources told Reuters that
Japan's Government Pension Investment Fund (GPIF) plans to put
over 20 percent of its funds in domestic stocks. That compares
with a current 12 percent target.
Gains in equities tend to weigh on the safe-haven yen, as
investors target riskier assets on expectations of making bigger
"It is that news on the GPIF that has moved dollar-yen this
morning," said Maher.
"We had some peculiar price action late yesterday that is
also being retraced, but the GPIF story gave a fundamental
rationale for the push higher."
The Aussie, hammered by an unexpected jump in the domestic
jobless rate, was down 0.9 percent at $0.9268 in early
European deals. It fell to $0.9263 at one point, its lowest
level since early June.
"The Aussie had been holding up better than the New Zealand
dollar and the data are a perfect excuse for some catch-up,"
said Kit Juckes, a currency strategist with French bank SG in
"Hopes of a chance to sell the Aussie back above 0.94 have
faded significantly. The Australian/US rate differential is
pointing firmly downwards for the currency from here."
The Reserve Bank of Australia kept its cash rate at a record
low of 2.5 percent on Wednesday, but the jobs numbers underlined
continuing worries over the economy's growth prospects after the
end of a mining investment boom.