Dollar set to post worst week vs yen since 2008

A picture illustration shows U.S. 100 dollar bank notes and Japanese 10,000 yen notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

NEW YORK (Reuters) - The U.S. dollar was on track for its biggest weekly percentage decline against the yen since the 2008 financial crisis in the aftermath of the Bank of Japan’s decision not to ease policy further, while strong euro zone growth data boosted the euro.

The dollar was last down 1.27 percent against the yen at 106.71 yen on Friday, near an 18-month low of 106.67 touched earlier in the U.S. session. The greenback was down about 4.5 percent against the yen for the week, putting it on track for its biggest weekly loss since October 2008.

The dollar also tumbled against the euro, with the euro hitting its highest against the dollar in two and a half weeks, at $1.1459. The euro was last up 0.86 percent against the dollar at $1.1449 .

The dollar index, which measures the greenback against a basket of six major currencies, hit an eight-month low of 93.007 and was last down 0.72 percent at 93.087. The index was set to decline 2.1 percent for the week to mark its biggest weekly decline in almost three months.

Analysts said the yen continued to surge after the BOJ’s decision to hold monetary policy steady on Thursday in the face of soft global demand and a sharp rise in the yen, defying expectations for increased stimulus to fight deflation.

“A large part of this move is the BOJ, which caught a lot of investors by surprise,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington. Analysts said the dollar could fall further to 105 yen in the coming weeks as traders continue to unwind “short” bets against the yen.

Analysts said preliminary data on Friday showing growth in the euro zone economy accelerated more than expected in the first quarter boosted the euro, while data showing U.S. inflation barely rose in March as consumer spending remained tepid weakened the dollar.

The U.S. data reinforced views that the Fed would be in no rush to hike interest rates again. The central bank’s policy statement released Wednesday was viewed as largely dovish.

“Markets are not expecting the Fed to do much ... so that’s putting some downward pressure on the dollar,” said Sireen Harajli, currency strategist at Mizuho Corporate Bank in New York. “The fact that data in the U.S. has not been coming in much stronger has not helped.”

Reporting by Sam Forgione; Additional reporting by Patrick Graham in London; Editing by James Dalgleish and Chizu Nomiyama