Reuters: US Dollar Report: FOREX-Yen tumbles on BOJ easing, euro vulnerable vs dollar

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FOREX-Yen tumbles on BOJ easing, euro vulnerable vs dollar Apr 4th 2013, 12:21 Thu Apr 4, 2013 8:21am EDT * Dollar/yen up more than 2.5 pct, could target 100 yen * Euro struggles after weak euro zone data * ECB and BoE keep rates on hold as expected By Nia Williams LONDON, April 4 (Reuters) - The yen fell sharply on Thursday after the Bank of Japan announced aggressive measures to ease monetary policy, including a plan to double its holdings of bonds and stocks in two years. In contrast, the European Central Bank kept interest rates on hold, helping the euro pare losses against the dollar. The single currency was down on the day, however, following weak euro zone economic data. Investors will now focus on ECB President Mario Draghi's news conference at 1230 GMT, when he is expected to highlight a bleak economic outlook while seeking to calm investors' fears about the repercussions of the Cyprus bailout. "How Draghi views the Cypriot legacy is going to be important for the euro and, after the data we have had this week, whether he sets the tone for an interest rate cut further down the line," said Jane Foley, senior currency strategist at Rabobank. "But the bigger theme of the day is the BOJ." Analysts and traders expected further broad losses in the yen after the Bank of Japan's (BOJ) bold steps, with the potential for the dollar to rise towards 100 yen. The dollar rose as much as 2.7 percent to 95.69 yen, climbing closer to a 3-1/2 year peak of 96.71 set on March 12. It was last trading at 95.42 yen, up 2.5 percent on the day. The euro also gained strongly against the Japanese currency, and was last trading up 2.3 percent at 122.26 yen. Traders said the yen's falls were all the greater because before the announcement the market had prepared for the BOJ to deliver less than expected, as it had done in the past. "The BOJ has set in play a very aggressive expansion of monetary policy and it's very likely dollar/yen will continue to rise," said Lee Hardman, currency economist at BTMU, adding the dollar could hit 100 yen in the next three to six months. The BOJ shocked markets in what was seen as a radical overhaul of policymaking, shifting the policy target to the monetary base from the overnight call rate and ditching its previous stance of shunning long-term bonds. The yen extended losses as BOJ governor Haruhiko Kuroda said he would not hesitate to adjust policy further. Market players said Japanese institutional investors were also likely to increase overseas investments, which could trigger "the next leg" in yen weakness. The BOJ's new plan means it will buy about 7 trillion yen ($73 billion) of bonds per month, equivalent to about 1.4 percent of GDP. By comparison, the U.S. Federal Reserve buys $85 billion of bonds - about 0.6 percent the size of the economy. Gains against the yen and the euro pushed the dollar to an eight-month high against a basket of currencies, with its index rising to 83.390. DRAGHI NEWS CONFERENCE Despite the market focus on the yen the euro was seen as vulnerable after weak euro zone business activity data highlighted a fragile economy. The single currency was down 0.3 percent at $1.2811 and could test support near the four-month trough of $1.2750 plumbed on March 27, analysts said. The ECB kept its main interest rate on hold at a record low of 0.75 percent, although the euro may come under fresh pressure if Draghi hints at loosening monetary policy in future. The Bank of England kept both interest rates and its quantitative easing target unchanged, as anticipated by the market. Sterling was down 0.3 percent at $1.5083, paring losses following a solid UK services sector purchasing managers' index, after earlier hitting a two-week low of $1.5034. Link this Share this Digg this Email Reprints

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