February 20, 2013 / 10:01 AM / 5 years ago

FOREX-Yen rises as Japan backs off foreign bond fund idea

* Yen rises vs dollar after Japan PM Abe’s comments

* RBNZ governor says New Zealand dollar overvalued

* Euro climbs in wake of upbeat German ZEW survey

* Market players looking ahead of Fed minutes

By Nia Williams

LONDON, Feb 20 (Reuters) - The yen climbed against the dollar on Wednesday after Japanese Prime Minister Shinzo Abe said the need to establish a public-private sector fund to buy foreign bonds had declined.

His comments came a day after Japan’s finance minister also played down such talk of the scheme, which would have helped drive down the value of the yen.

Strategists said Japan was stepping back from some of its more aggressive policy easing proposals after the Group of 20 nations declared at a meeting in Moscow on Saturday that there would be no global currency war.

But the New Zealand dollar slid 0.8 percent to US$0.8398 after Reserve Bank of New Zealand governor Graeme Wheeler said the currency was significantly overvalued compared to economic fundamentals.

“Currency wars are still what’s driving markets, whether it’s the RBNZ, or Japan talking about buying or not buying bonds,” said Daragh Maher, currency strategist at HSBC.

“Even when we have juicier bits of data we are still worrying more about what BoJ members say and that’s what’s driving the yen.”

The dollar fell as low as 93.12 yen after Abe’s remarks, before paring losses to trade down 0.2 percent at 93.35 yen. It moved away from the near three-year high of 94.465 hit on Feb. 11.

There was little reaction to data showing Japan’s trade deficit widened to a record in January as energy imports rose more than expected.

The possibility of setting up a foreign bond-buying fund had been included in a campaign platform drawn up by Abe’s Liberal Democratic Party ahead of a national election last December.

“I think he was told at the G20 ... ‘don’t you dare, don’t you dare do that’,” said Rob Ryan, a strategist for RBS in Singapore, referring to the idea of setting up the fund.

Market players said if investors pare back expectations of aggressive BOJ easing measures the dollar’s rise, of roughly 7.5 percent against the yen so far this year, could stall.

Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, said the dollar would hold between 92.50 and 95.50 yen over the next couple of weeks.

Investors are also waiting for more clarity on the government’s choice for the next Bank of Japan governor to replace Masaaki Shirakawa.

A delay in nominating a new BOJ governor has fanned talk of friction between Japan’s prime minister and finance minister over who should run a central bank charged with taking aggressive action to beat deflation.


The euro rose 0.3 percent to $1.3422, staying firm after data on Tuesday showed a strong improvement in German economic sentiment.

It recovered from Friday’s low of $1.3306, with technical support seen around the 50-day moving average at $1.3313.

“The fact that euro/dollar has staged a mini revival this week despite Italian elections coming up is reasonably encouraging for the euro,” said HSBC’s Maher.

A fragmented parliament after Italy’s Feb. 24-25 election may hamper the country’s reform efforts and prompt investors to sell the euro.

Market players were also looking ahead to the release of minutes from the U.S. Federal Reserve’s latest policy meeting for any clues on future bond-buying plans.

Any hint the Fed is getting closer to paring back its asset purchase scheme could help lift the dollar.

The dollar index was last down 0.15 percent on the day at 80.339.

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