February 15, 2013 / 7:20 PM / in 5 years

FOREX-Yen slumps as Japan not singled out in draft G20 statement

* G20 draft communique doesn't criticize Japan for yen
    * BoJ nominees awaited, less radical Muto seen front runner
    * Next up for dollar/yen is 100-110 are-hedge fund manager

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Feb 15 (Reuters) - The yen fell after three days
of gains against the U.S. dollar and euro on Friday after a
draft statement from the Group of 20 nations failed to single
out Japan for using monetary and fiscal policies to weaken its
    That was a signal for investors to keep selling the yen as
the Japanese government undertakes measures to end deflation.
The yen had gained earlier this week on the expectation that the
G20 countries, which are meeting in Moscow, would echo a
statement made by the Group of 7 this week and censure Japan for
making comments to weaken its currency.
    "The final communique is not due until Saturday and could
change. But for the time being, euro and yen traders have
responded positively to what appears to be less constraint on
Japan from G20 nations," said Kathy Lien, managing director at
BK Asset Management in New York.  
    In early afternoon trading, the dollar rose 0.7 percent to
93.53 yen after earlier hitting a one-week low of 92.21
yen. It had set a 33-month high of 94.42 yen on Monday, and
solid chart support was expected at 92.00 yen.
    The dollar has gained 0.8 percent this week versus the yen,
strengthening in 13 of the last 14 weeks. 
    The yen rose in the overnight session after a Reuters
report, citing sources, that former top financial bureaucrat
Toshiro Muto was the front runner to become the next BoJ
governor. Prime Minister Shinzo Abe and his advisers have cut
the field of final candidates to two or three. 
    Muto is seen as likely to pursue slightly less radical
stimulus measures than some of the other contenders. A decision
could come in the next few days, the sources said.
    Stephen Jen, managing partner at hedge fund SLJ Macro
Partners in London, believes that the next step for dollar/yen
is to go even higher, possibly in the 100-110 yen area.
    "Japanese policy makers will most likely continue to pursue
Abenomics with aggression, but will try to pacify Japan's G7
partners by toning down their verbal interventions," said Jen. 
    The euro last traded up 0.6 percent against the yen at
124.84 yen, after earlier falling to 122.87 yen, its
lowest level since Jan. 30. It hit a 34-month high of around
127.71 last week.  
    On the week, the euro posted gains of 0.8 percent.          
    Federal Reserve Chairman Ben Bernanke on Friday said the
United States is acting in line with the position of the G7 by
using domestic policy tools to boost growth and reduce
    Michael Woolfolk, senior currency strategist at BNY Mellon,
said investors should not expect the "currency war" debate to
dissipate after this weekend's G20 meeting.
    "You've got the G7 on one side and the BRICS on the other,"
he said, referring to the big emerging economies of Brazil,
Russia, India and China. "They have opposing views on zero
interest rates."
    ECB chief Mario Draghi on Friday also criticized recent
"chatter" on currencies and said the euro's exchange rate was in
line with long-term averages. Like ECB policymaker Jens
Weidmann, who spoke earlier, Draghi resisted pressure from some
euro zone politicians to target the euro's exchange rate on the
ground that it is overvalued.  

    The euro remained slightly under pressure against the dollar
a day after the release of data showing the euro zone sinking
more deeply into recession than forecast. The grim picture is
likely to keep alive expectations of a interest rate cut by the
European Central Bank.
    Euro zone money market rates are also likely to ease in
coming weeks, keeping the euro well off the recent highs above
$1.37 struck on Feb 1. 
    The euro last traded flat at $1.3359.
    The Italian election on Feb. 24 and news on the repayments
by euro zone banks of loans to the ECB would be the key drivers
for the euro in the upcoming week. The expectation is that the
bank repayments would be lower than last month and should slow
the pace of the decline in the ECB's balance sheet. That should
be viewed as euro negative.
    U.S. data released on Friday helped drive gains in the
dollar versus the yen.
    Manufacturing got off to a weak start this year as motor
vehicle production tumbled, but a rebound in factory activity in
New York state this month suggested the decline would be
    Consumers were a bit more upbeat early this month even as
they paid more for gasoline and their paychecks were reduced by
higher taxes, other data on Friday showed.
    The reports helped drive gains in the dollar versus the yen.
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