Reuters: US Dollar Report: FOREX-Yen recovers, though long-term weakness intact

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FOREX-Yen recovers, though long-term weakness intact Apr 5th 2013, 09:14 Fri Apr 5, 2013 5:14am EDT * Dollar/yen pares gains on profit taking but will trend higher * Yen plunges to 3-1/2 year low after BOJ's radical easing * BOJ pledges to pump $1.4 trillion into economy * Poor U.S. non-farm figures could weigh on dollar/yen By Anooja Debnath LONDON, April 5 (Reuters) - The yen recovered against the dollar on Friday as investors and speculators took profit on its slide to a 3-1/2 year low on the Bank of Japan's surprisingly radical monetary expansion drive. It could gain further against the dollar if U.S. jobs data due later on Friday disappoints. The yen suffered its biggest one-day tumble since late 2008 on Thursday, when the BOJ eased policy aggressively to fight deflation. The dollar rose to as high as 97.20 yen on trading platform EBS in Asian trade on Friday, a level not seen since August 2009 . It later pared gains to trade flat at 96.36 yen. The dollar was still up 11 percent against the yen this year. "The moves yesterday were excessive ... we have seen quite a lot of dollar/yen buying ... so we are seeing a pullback and some profit taking," said Valentin Marinov, head of European G10 FX strategy at Citi. "That said the trend in dollar/yen is on the upside, it feels like investors will use dips to jump on the bandwagon of the short yen trade before long." Traders also said a sharp rebound in Japanese government bond yields prompted the reversal, weighing on the dollar against the yen. The greenback soared 3.6 percent against the yen on Thursday after the Bank Of Japan (BOJ), under new Governor Haruhiko Kuroda, unleashed intense monetary stimulus. It 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 BOJ bond buying. The yen pared losses against major currencies after dropping steeply earlier in Friday's session. The euro, was down 0.2 percent against the yen at 124.44 yen, after rising 4.3 percent on Thursday, its biggest one-day gain against the yen since November 2008. Analysts said European bonds and U.S. assets could benefit as the Japanese yield curve has already flattened on expectations of the BOJ purchasing long-dated Japanese government debt, which could pique domestic investor hunger for higher yields abroad. "Domestic investors are likely to be encouraged by the BOJ's promise to stay accommodative for quite some time," said Bill Diviney, currency strategist at Barclays Capital in Tokyo. He expected U.S. assets would see the most significant boost from Japanese investors' forays abroad. Analysts said that the dollar has space to run higher against the yen now that it has regained a foothold above the 96 yen level. Barclays foresees the dollar firming to 103 yen in the coming weeks. U.S. NON-FARM PAYROLLS The near-term risk to further gains in the dollar against the yen was U.S. employment data due at 1230 GMT. A disappointing U.S. non-farm payrolls (NFP) report could fuel expectations of more bond buying by the Federal Reserve, which would weigh on the dollar. Strategists said the dollar has been supported by bets the Fed would reduce the size of its asset purchases later this year, which would act as policy tightening while other major central banks look poised to ease further. "If we see a weak NFP number, dollar/yen could see some more downside as investors take profit on dollar/yen longs but I doubt it will have too much lower to go on the downside before buyers emerge," Citi's Marinov said. "The commitment from Kuroda to ease further, the sheer aggressiveness of that compared to the prospects of less quantitative easing from the Fed in the 6-12 month horizon should keep bets for dollar/yen upside alive." Against the dollar, the euro slipped 0.1 percent to $1.2917 . It fell to a 4-1/2-month low of $1.2740 on Thursday after European Central Bank chief Mario Draghi said the bank stood ready to act if growth continues to languish. Link this Share this Digg this Email Reprints

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