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FOREX-Yen steadies after sharp dive as BOJ begins new age with a bang
April 8, 2013 / 2:50 AM / in 5 years

FOREX-Yen steadies after sharp dive as BOJ begins new age with a bang

* Yen plummets in early Asia before slightly paring losses

* Nikkei reports BOJ to begin buying longer-dated bonds this week

* Further downside for yen expected, other crosses quiet

By Sophie Knight and Ian Chua

TOKYO/SYDNEY, April 8 (Reuters) - The yen hit fresh lows against a host of major currencies on Monday, resuming its slide on reports the Bank of Japan would immediately begin buying longer-dated bonds to underline its determination to beat deflation.

The U.S. dollar was at 98.33, having jumped more than a full yen to 98.85 in early Asian trade, the highest since June 2009, as stop-loss selling amid thin market conditions exaggerated the yen’s slide.

The euro climbed as far as 128.32 yen, its highest since January 2010, before pulling back to 127.78 yen, 0.8 percent up from late U.S. levels on Friday.

Traders say the move was triggered by a report in the Nikkei business daily that the central bank would buy 1.2 trillion yen ($12.35 billion) of government bonds with a maturity of over five years this week, showing a sense of urgency never before seen in the BOJ.

Last week, the central bank promised to inject about $1.4 trillion into the economy in less than two years, a gamble that sent bond yields plummeting as prices rose on the prospect of massive purchases of debt by the BOJ.

“Foreign funds or speculators selling off yen has got the dollar-yen to this level,” said Makoto Noji, senior strategist at SMBC Nikko Securities.

Noji said he sees the greenback hitting a peak against the Japanese currency in April, but that risk-aversion due to more lacklustre data from Europe or the U.S. may prove an obstacle to further gains for the dollar.

For now, however, analysts assume that the flood of new money from the BOJ will be partly used by Japanese investors to buy higher yielding assets abroad, putting downward pressure on the yen.

“We have re-established a broad basket of JPY shorts in light of last week’s BOJ aggressive actions,” wrote analysts from JPMorgan in a client report.

“Radical monetary measures were needed to re-invigorate the downtrend in the yen, and on this front the BOJ has over delivered.”

JPMorgan had re-established long positions in USD/JPY and also favoured the Australian dollar and Brazilian real as carry trades against the yen.

“For now, barriers are seen as a magnet more than anything else. The first logical resistance would be this morning’s high on the spike, then the 100 level and the 101.50,” said Sue Trinh, senior currency strategist at RBC in Hong Kong.

Analysts said the dollar-yen’s tenkan line on its daily Ichinoku chart crossed its longer-term average known as the kijun line in what is usually a bearish signal, but it was a false alarm. The two lines converge at 95.69 and are said to provide underlying support.

Since the BOJ unleashed the world’s most intense burst of monetary stimulus last week, the yen has slumped 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 U.S. dollar rising to 103 yen in three months.

The Aussie was up 0.2 percent against the yen at 102.06 yen after rallying to 102.32 yen, its highest since July 2008.

With the Japanese currency still firmly in focus, the other major currencies took a backseat.

The euro was flat against the greenback at $1.2995, hovering near a two-week high of $1.3040 set Friday after weaker-than-expected employment growth cast a shadow on the U.S. economic recovery picture.

With little economic data out on Monday, the downward pressure on the yen is seen as likely continuing through the day, though its momentum could drop on further signs that the U.S. economic recovery is not as robust as hoped.

Disappointing U.S. nonfarm payroll data on Friday very briefly dented the greenback’s gains before being overwhelmed by yen bears continuing to celebrate the BOJ’s aggressive stimulation plan.

“Getting to 100 yen against the dollar is just a matter of time,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp.

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