January 15, 2013 / 5:10 PM / in 5 years

FOREX-Yen rallies vs dollar, euro on Japanese minister's remark

* Japan’s Amari warns of negative impact of weak yen

* Yen regains ground vs dollar on minister’s comments

* Dollar could gain on safety bid related to debt ceiling debate

* German data weighs on euro

By Julie Haviv

NEW YORK, Jan 15 (Reuters) - The yen rose against the dollar on Tuesday, rebounding from four straight sessions of losses that took it to a 2-1/2 year low as a warning from a Japanese minister about the disadvantages of excessive yen weakness caused investors to shed bearish bets.

Expectations of aggressive action from the Bank of Japan to weaken its currency have driven the dollar sharply higher in recent months, with the greenback notching a nearly 11.3 percent gain in the fourth quarter of 2012 and up about 2 percent so far this year.

However, with bets against the yen at lofty levels, many analysts contend the currency is poised for a short-covering rally, although it should prove temporary given widespread forecasts of forceful action from the BoJ to heal Japan’s weak economy.

The dollar last traded down 1.1 percent at 88.48 yen, largely weighed by comments from Japanese Economics Minister Akira Amari, who said excessive yen weakness could hurt people by raising import prices.

Amari’s comments countered remarks made by officials over the past month that have strongly encouraged yen weakness.

“I suspect that there is near-unanimity in the market that the yen has fallen too far, too fast, but also enthusiasm to sell into corrections such as this,” said Kit Juckes, foreign exchange strategist at Societe Generale in London.

Traders cited support at 88.20 yen, the dollar’s 200-hour moving average, while reported stop-loss sell-orders at 89.50 yen could cap any recovery in the U.S. currency. Traders also cited option barriers at 90 yen.

The dollar hit a trough of 88.27 yen during the global session, but losses were pared during the New York session following an array of U.S. data.

U.S. retail sales rose solidly in December while manufacturing in New York state contracted for a sixth month in January. Other data showed inflation pressures remained muted, with U.S. producer prices falling in December for the third straight month.

That should allow the Federal Reserve to stay on its very easy monetary policy path to nurse the recovery, a negative for the dollar but a positive for risk appetite.

Nevertheless, the dollar may fare well over the next month as investors embrace its safety during a looming battle in Washington over raising the government’s borrowing limit, the so-called debt ceiling.

Republican opposition in Congress to increase the $16.4 trillion ceiling raises the risk that the United States could default on its debt in coming months.

The dollar’s setback came a day after it hit 89.67 yen, its highest since June 2010.

Bets on aggressive monetary easing from the Bank of Japan have weighed heavily on the yen in recent months. The central bank has been under relentless pressure from newly elected Prime Minister Shinzo Abe to adopt a 2 percent inflation target to beat deflation once and for all.

It holds its next policy meeting on Jan. 21-22.

Amari’s comments also buoyed the yen against the euro, with the single currency last trading down 1.5 percent at 117.98 yen. The euro on Monday struck 120.12, a 20-month peak.


The euro, which is up about 1 percent against the dollar so far this year, fell for the first time in four sessions on concerns about the U.S. debt ceiling debate and weak data from Germany, Europe’s largest economy.

The German economy was hit hard by the euro zone crisis in the final quarter of last year, shrinking more than at any point in nearly three years as traditionally strong exports and investment slowed, the Statistics Office said on Tuesday.

The euro had been rallying in the aftermath of a European Central Bank meeting last week. Comments by ECB President Mario Draghi were largely seen as supportive and served to downplay expectations of a near-term rate cut.

Should data out of the euro zone continue to show economic weakness, the ECB could opt to lower rates to spur growth.

Despite its fall against the dollar and yen, the euro extended gains against the Swiss franc, rising to a 13-month high. The euro rose to 1.23865 francs on trading platform EBS, its highest level since December 2011.

The Swiss franc has come under selling pressure as concerns about the euro zone debt crisis have receded, prompting investors who had bought the Swiss currency as a refuge from the euro’s problems to cut long positions.

After reaching an 11-month high on Monday, the euro last traded at $1.3334, down 0.4 percent on the day, according to Reuters data.

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