May 10, 2013 / 8:02 PM / 5 years ago

FOREX-Yen slides to 4-1/2-year low vs buoyant dollar

* Dollar soars to near 102 yen, 105 seen possible by summer
    * Traders report options barrier at 102 yen
    * Euro hits more than 3-year high versus yen
    * Focus shifts to G7 meeting

    NEW YORK, May 10 (Reuters) - The Japanese yen plunged to its
lowest level against the U.S. dollar in more than four years on
Friday after data confirmed Japanese investors were purchasing
more foreign assets, with more losses seen likely as the Bank of
Japan's massive monetary easing takes hold.
    The dollar, on the other hand, rallied broadly as recent
strong U.S. data in the labor market - last Friday's robust
nonfarm payrolls report and Thursday's weekly jobless claims
data - sparked talk the Federal Reserve may scale back its asset
    With the Japanese currency on Thursday breaching the
psychological and technical level of 100 to the dollar, most
analysts expect the yen to continue to weaken as the Bank of
Japan embarks on its $1.4 trillion bond buying plan.  
    Some have called for the dollar to rise to 105 yen this
summer and 110 by the end of the year. While BoJ policy has
weighed on the yen, its weakness against the dollar is just as
much a result of an improving U.S. economic landscape.
    "In some ways, there has been too much focus on the yen here
and while breaking into triple digit territory is always
exciting, the strong U.S. payrolls and jobless claims data in
recent weeks shows that the United States is very much back in
play," said Steven Englander, head of G10 strategy at CitiFX, a
division of Citigroup in New York.
    "People had been flirting with the idea that Europe's growth
picture was getting better and Japan was improving, but the
reality is that the U.S. is the only game in town and what we
are seeing in the yen is a manifestation of that," he said. 
    The Japanese currency fell to 101.98 yen per U.S.
dollar, the lowest since October 2008. The dollar last traded at
101.58 yen, up 1 percent on the day.
    Traders said the yen extended falls after breaking through a
reported options barrier at 101.50 yen and as stop-loss dollar
buy orders were triggered above 101.55 and 101.60 yen. Another
options barrier was said to lurk at 102.00 yen.
    Hedging currencies in the option market is one of the
biggest sources of activity in the spot, or cash, market.
Sizeable option-related demand often is forced to come into the
market and trade in the direction of the breakout in price,
either to unwind hedges or to cover new exposures, or both.
    "The break of the 100-yen level unleashed the animal
spirits," said Marc Chandler, global head of currency strategy
at Brown Brothers Harriman in New York.
    Overnight, data showed that Japanese investors turned net
buyers of foreign bonds in the last two weeks. They bought 309.9
billion yen ($3.1 billion) in foreign bonds in the week through
May 4 after purchasing 204.4 billion yen ($2 billion) the
previous week, according to the Ministry of Finance. 
    "With yields nonexistent in Japan, investors are forced to
search for yield elsewhere, driving down the value of the yen
while boosting currencies with highly-rated sovereigns like the
U.S. Dollar," said Christopher Vecchio, currency analyst at
DailyFX in New York. "With the new trend developing, the next
leg of Japanese yen weakness has begun."
    The yen has lost nearly 9 percent against the U.S. currency
since the BoJ announced aggressive monetary easing on April 4,
and was down over 17 percent so far this year. 
    Analysts at UBS were also optimistic, raising their one- and
three-month forecasts to 102 and 105 yen respectively, both from
95 yen previously.
    Other analysts, however, were more cautious, believing that
after hitting lofty levels in dollar/yen, gains in the greenback
 could slow.
    "The burst of activity could be reasonably temporary," said
Nick Bennenbroek, managing director and head of currency
strategy at Wells Fargo in New York, citing an extremely short
speculative positioning in the yen.
    "We would need fresh central bank signals to spur another
leg higher - a hawkish Fed and a dovish BoJ. I don't think those
signals are forthcoming anytime soon."
    The focus now shifts to the G7 meeting in the United Kingdom
 on Friday and Saturday, where currencies - especially the yen's
weakness - could be up for discussion. And it could be a
contentious debate. Even before the break of the 100-yen level,
the U.S. government had been closely monitoring Japan's efforts
to reflate its economy.  
    Reflation is in the early stages, but the yen has already
dropped nearly 32 percent against the dollar since autumn last
    On Friday, U.S. Treasury Secretary Jack Lew said Japan had
"growth issues" that needed to be dealt with but that its
attempts to stimulate its economy needed to stay within the
bounds of international agreements to avoid competitive
    The euro, meanwhile, hit a three-year high of 132.25 yen
 and was last at 131.82, up 0.5 percent. But it was
down 0.5 percent against the dollar to $1.2979 after
hitting a one-month low of $1.2935, according to Reuters data.
    Some $4.8 billion in yen changes hands, using Reuters
Dealing data, while $4.2 billion in euros changed hands. 
    The dollar gained 2.6 percent against the yen this week but
that is only the best week since April 5. The euro fell 1
percent against the dollar this week, the worst since the week
of March 29.
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