April 8, 2013 / 8:56 AM / 5 years ago

FOREX-Yen slides further as BOJ kicks off aggressive stimulus

* Yen hits lowest in 4 years vs dollar, 3 years vs euro

* BOJ begins buying longer-dated bonds

* Further yen falls expected

* Euro shrugs off Portugal worry as Spain, Italy yields fall

By Jessica Mortimer

LONDON, April 8 (Reuters) - The yen slid to its lowest in nearly four years against the dollar and in three against the euro on Monday after the Bank of Japan began buying government bonds as part of its aggressive stimulus policy.

The Japanese currency was poised for more falls as a setback for the dollar after weak U.S. jobs data on Friday proved brief and emboldened investors to resume selling the yen. This left the dollar in sight of the 100 yen mark.

The dollar gained 1.5 percent on the day to hit 99.03 yen on the EBS trading platform, breaking above a reported options barrier at 99 yen to hit its highest since May 2009. Traders said it may run into strong selling before 100 yen due to other barriers but they were not expected to hold for long.

“The fleeting impact of the weak U.S. payrolls data shows a strong appetite to sell the yen and buy dollars. It has reinforced confidence that the yen weakening trend is intact,” said Lee Hardman, currency economist at BTMU.

He said the dollar looked well on target to surpass 100 yen. However, it was unclear whether the yen would weaken at the same pace, with the dollar having gained more than 14 percent already this year, and its falls could be tempered by more evidence of a slowing U.S. economy.

The BOJ conducted its first bond-buying operations on Monday, saying it would buy 1 trillion yen of government bonds with maturities between five and 10 years, and 200 billion yen of bonds with maturities exceeding 10 years.

The euro also jumped, by 1.4 percent on the day to hit its highest since January 2010 at 128.755 yen. It shrugged off concerns about Portugal’s ability to keep its bailout programme on track after its constitutional court rejected some of its austerity measures.

These worries were offset by sharp falls in the borrowing costs of Spain and Italy due to demand for higher yielding euro zone bonds from Asia after the Bank of Japan unveiled plans last week for surprisingly aggressive monetary easing.

The euro was up 0.1 percent at $1.3007, hovering near a two-week high of $1.3040 set on Friday after the weaker-than-expected jobs growth data.


New BOJ Governor Haruhiko Kuroda said last week the central bank would inject about $1.4 trillion into the economy in less than two years, a gamble that sent bond yields plummeting as prices rose on expectations of massive BOJ debt purchases.

Since then, the yen has fallen more than 6 percent against both the dollar and euro.

“We expect further weakness ahead, given the bank’s clear commitment to achieve its 2 percent (inflation) target,” analysts at Barclays Capital said, adding they see the dollar rising to 103 yen in three months.

Analysts expect the flood of new money will be partly used by Japanese investors to buy higher-yielding assets abroad, putting downward pressure on the yen.

JPMorgan analysts wrote in a client report that they had re-initiated a basket of yen shorts and were recommending the Australian dollar and Brazilian real as carry trades against the yen after the BOJ announced its aggressive stimulus plan.

The higher-yielding Australian dollar rallied to 102.85 yen , its highest since July 2008, before the collapse of Lehman Brothers.

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