* Yen gains sharply, but rebound may be short-lived
* Aso’s comments, doubts over radical BoJ chief helps yen
* Draghi’s comments continue to weigh on euro
By Anirban Nag
LONDON, Feb 8 (Reuters) - The yen rose sharply on Friday after Japan’s finance minister said the currency’s recent drop had been overdone and doubts crept in about whether the Bank of Japan will get a governor who will ease policy aggressively.
Some strategists said gains were likely to be temporary however, after Japanese balance of payments data added to worries about the economy. Japan posted a current account deficit for the second month running December.
Traders reported U.S. and Asian funds buying the yen, with gains most pronounced against the euro.
Comments from European Central Bank chief Mario Draghi on Thursday, saying the exchange rate is important for growth and price stability, weighed heavily on the single currency.
The euro fell as much as 1.5 percent against the yen to 123.54 yen, before paring losses to last trade down 1.1 percent on the day at 124.02 yen.
The dollar also shed more than 1 percent to hit a session low of 92.17 yen, and was last trading at 92.49 yen.
The yen, which fell to a 34-month low against the euro and a 33-month low against the dollar on Wednesday, got a boost from Finance Minister Taro Aso’s comments that the yen’s slide from 78 to 90 per dollar was steeper than intended.
It was also helped by a Reuters report that Japanese Prime Minister Shinzo Abe faces opposition from within his own cabinet and financial bureaucrats to appoint a new BoJ governor who will pursue aggressive easing policies.
“The market is responding to these reports and taking profit in short yen positions,” said Geoffrey Yu, currency strategist at UBS. “But the dollar remains a buy on dips against the yen. Speculation about who will take charge at the BoJ will continue until there is an appointment.”
Earlier this month, BoJ governor Masaaki Shirakawa said he will step down on March 19, a few weeks ahead of schedule, allowing Abe to appoint a chief who is more amenable to making drastic policy changes to get Japan out of deflation.
Expectations that the BoJ will aggressively ease monetary policy in coming months have driven the yen lower in recent months.
The euro edged up 0.1 percent against the dollar to $1.3419 , after having fallen 0.9 percent on Thursday when it briefly dropped to $1.33705, the lowest since Jan. 25.
Draghi said economic activity in the euro area should recover gradually in 2013 but added there are more negative risks than positive, and said the exchange rate was important for growth and stability.
Investors interpreted the remarks as setting the scene for a possible future interest rate cut by the ECB, in the event that the euro zone economy slows further.
At the moment the ECB is still withdrawing some of its unconventional policy easing setting at a time when both the Federal Reserve and the BoJ are expanding their balance sheets.
But Patrick Armstrong, head of investment selection at Armstrong Investment Managers, said he was short of the euro in anticipation of the ECB eventually taking steps to weaken the euro against other currencies.
“There are going to be currency wars, the ECB will have to get into the same game as everyone else with some form of quantitative easing or printing money,” he said.
“The periphery is in recession and with the strongest currency that’s not going to facilitate recovery at all.”